Emini Day Trading

I was recently reading some articles on Bloomberg.com and came across one which referred to Ms. Rosabeth Moss Kanter.  Ms. Kanter is a professor at the Harvard Business School.  Following the links in the article led me to this interview which I thought was interesting and I would like to share with you. http://www.managementconsultingnews.com/interviews/kanter_interview.php

One of the things she is known for is her Kanter Law.  This law states that, “everything can look like failure in the middle.”  If you have been following our S&P500 emini trading system you will know that we are currently in a drawdown period.  Drawdowns can feel like failure.  The feelings they create are difficult to describe, but if you trade you should be able to immediately relate to these undesirable feelings.  Nonetheless, Ms.

Kanter’s law states that it is helpful to look at the situation as if you are in the middle of a process when things are not going well.

As a systematic trader, I find this perspective useful.  By considering drawdowns as if I am in the middle of them, gives me perspective, and allows me to have confidence going forward.  Being in the middle of a drawdown period is rough, but having the right emotional and financial tools gives one the confidence to manage it.  Faith, confidence, and perspective are your emotional tools as a systematic trader.   Disciplined money management is your financial tool to get through drawdown periods.

Drawdowns are similar to being in the middle of a process.  As systematic traders, we must always be ready to face drawdowns and the feelings they create.  Solid trading models, confidence, faith, and the Kanter Law can all help pull us through the middle of this process called drawdown.

All successful traders have trading plans for both good trading times and the negative periods.  Negative trading periods are known as drawdowns.  I wonder how the term came about, but one can guess that these periods are called drawdowns because they not only reduce our accounts, but that they also draw us down emotionally.

So how can we handle “draw us down” periods?  In my humble opinion, the best way to handle drawdown periods is through confidence, faith, and disciplined money management.  Confidence and faith are interrelated.  Confidence increases over time.  The longer we successfully trade our models, the more confident we become.  Prior drawdown periods and negative emotional experiences also can help us better manage and understand current drawdown periods. “What doesn’t kill us makes us stronger” and “diamonds are made under pressure,” are two sayings I like to think about when I am in drawdown periods.

Ms.

Rosabeth Moss Kanter, a Harvard Business School professor, was asked about what  confidence is in an interview.  Her response was, “confidence is a situational expectation—an expectation of a positive outcome.”  This is relevant to traders who use trading systems and models.  Every time we trade we have a situation where we should have an expectation of a positive outcome.  Our trading models should have positive expectation.  Positive expectation can be calculated from our trading research.  But positive expectation cannot, however, be calculated in our emotional states.  This comes from faith; faith in our selves, faith in our trading models, and faith from above.

Trading system analysis: Learning from perfection
Many trades lasted from 200-300 seconds to one-two hours. Some trades took just a few seconds, perhaps because a quick liquidation was necessary to avoid a big loss. Trades stagnating for two to three hours are found for the E-mini S&P 500 (results of …
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Ever see the movie, the Untouchables? It’s about a government agent, Eliot Ness who, along with his band of G-men (Government men), fights gangsters (like Al Capone) during prohibition. There are great shots in the film, guys hanging from moving cars, holding onto swinging doors while they shoot up restaurants with Tommy guns. Today we have our own Untouchables. We’ve replaced Tommy guns for computers and trading platforms. We sit in chairs instead of swinging from moving cars. And the killing, well, we’ve traded in the G-men for the G-word: Greed.

What is greed? Wikipedia defines greed as “an excessive desire to possess wealth or goods with the intention to keep it for one’s self.” Probably the operative word here is “excessive”. To investors day trading or night trading, the G-word may as well be 4 letters.

Lets look at how insane greed can be as it affects futures trading, especially emini futures.

Emini futures, just like stocks, trade in price fluctuations, but with futures, price fluctuations are known as ticks. In the world of stocks, one price fluctuation is 1 penny. Generally, 1 tick, 1 price fluctuation, pays out about .50…that’s correct 1 tick. Futures trade in contracts not shares. Investors can easily find futures brokers who allow you to trade for 0 per contract. Stocks trade in multiples of 100 shares. Stocks that have enough volatility to day trade start anywhere from /share to /share and more. Even on the low end, realistically, you need 00. Then when your 100 shares move 1 penny, you make .00. But compare that to trading with emini’s. For 00, you can trade 5 contracts. For each tick movement, you make . So it’s a 60 to 1 ratio, perhaps a bit less, given that the commission for trading futures is a bit higher than stock trading, so call it 50 to 1 ratio.

Want to make 0 a day….make 5 ticks. Watch this. 5 ticks X .50 = .50 x 5 contracts (00) = 2.50. Now take off for commission and say for losses = 5 (give or take). 5/day x 20 days a month is a nice ,500 a month, or just over ,000 a year. Futures are unique when it comes to taxes. They were originally designed for farmers. Over the years, farmers ended up with some very sweet IRS deductions, called the 60/40 split. When you trade futures, 60% of the capital gains is considered long term and 40% is considered short term. At the end of the year, your futures broker sends you a one-liner, a net price, of the amount of wins or losses. It is not itemized by transaction. Since it is a net figure, the IRS can’t tell if you are a farmer or a speculator trading crude oil futures. So everyone enjoys the 60/40 spilt. For taxes, that puts you in about a 20% tax bracket. Since you are trading and that is your business, you can deduct business expenses from that figure (part of your house, your phone, internet, computer, car, etc.) lowering that tax rate to more like 15%. So 15% of ,000 gives you around ,000 spendable a year.

Lets compare that with working 8 hours a day at a job. To make ,000 a year, first of all your job needs to be paying you about / hour. Why? Most Americans pay an overall tax rate (Federal, State, Local, and Withholding) of about 40%. If you make / hour and say work 2,000 hours a year, that comes to ,000. Take off ,000 in taxes, so now you’re at ,000. In order to work, you have commute expenses to deal with. With the price of gas and oil, if you drive 20 miles a day, we’ll there is 1 gallon, so call it /day or 0/month, so there goes 00 just to commute. You’ve got wear and tear on your car, so that will cost another 00 a year. With a ,000 a year job, chances are you can’t be driving some clunker, so that will cost you another 0 a month, so lets take 00. While at work, you’re probably going to have to eat out, add another, conservatively /day (coffee and sandwich), another 00. And of course you need clothes, unless you are fortunate to work in a place that allows you to work in jeans. Add another 00 for that. All in all, say that’s 00 and that’s on the low end, assuming you only use 1 gallon a day, eat cheaply, and buy simple suits. To be on the safe side, say 10k. So for working 8 hours a day, you net around ,000 spendable.

Of course, something must be wrong with this calculation, because the average median income in America is not ,000. It is more in the range of ,000, more like /hour, grossing 0 per day, not spendable.

0 / day spendable is a lot of money. That puts you WAY above normal by about 35%. Just 0 / day. And here’s the best part, to make your 5 ticks, 0 / day, it doesn’t take 8 hours, working bell to bell. You can make those ticks in as little as 15 minutes of trading a day, on the high side, maybe an hour and a half. There is no commuting, no wear and tear on your body, no boss, no clients or customers, no specific time you need to be in the office, etc.

So why are Emini Futures killing investors who are day trading or night trading? Because of the illusive G-word….Greed. We have all seen extreme damages that greed can cause. In 2008, larger brokerages created collateralized debt obligations, packaging and repackaging mortgages until they were trading nothing but air, sending the entire world into financial collapse from which we are still not recovered (job wise or housing wise). The problem for day traders and night traders is not that you can’t make 5 ticks, it is that you can’t stop after you have made them. If you can make 0 in 15 minutes, you tell yourself, well, then I can make 0 in 30 minutes, 0 in an hour, etc. etc. etc. Maybe you can and maybe you can’t. The longer you trade, the more mistakes you are bound to have. People say…I am trading in a zone, I can do no wrong today, and boom…loss. Why? There seems to be a direct relationship between the number of wins and the degree of cockiness: the more wins, the more cocky traders become, the more they trade without their own rules and by the seat of their pants.

Investors who are day trading or night trading beware, lest the swinging doors and Tommy guns get you! By the way, while writing this article, I did one trade, made 0 in 43 seconds, and now I am ready to trade again.

Another advantageous session for E-mini day-traders
Tuesday morning began with strength after the index futures sold off in response to European weakness in premarket trade. Downside gaps filled quickly, but the market had been down even further in early trade, leaving the indices at resistance fairly …
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Very Precarious Position for Emini S&P
The market should have been able to shrug that off, but instead it collapsed 200 points straight down and closed, basically, at the lows for the day. That was awful action in the face of 2+ put-call prints consecutively. Bear markets can be tough, …
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The E-mini S&P is stuck within roughly a 20 point range
Investors remain nervous towards Eurozone developments and this is being reflected in the volatile movements in the market place. The E-mini dropped 20 points through the Asian session bottoming out around S1 at 1237.75 as Asian markets took risk off …
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Quick 15 point scalp in the emini Dow. Luke Moretti trading Disclaimer: There is both potential for reward and risk of loss in trading futures and options. Only risk capital should be used to trade in the futures markets. This video is not a solicitation to trade in the futures markets.
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Jerry explains the CFRN Sandbox Emini Indicators and how he applies them as an Emini Daytrader.
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A NEW LOOK AT DIVERGENCE ON THE SPOOS www.rsksys.com inforsk@comcast.net 303-750-8234 Be sure to subscribe to our videos and comment on them! RSKsys Intl is committed to the ongoing development of consistently profitable Emini trading systems and strategies for the S&P Futures commonly called the Spoos. Our accomplishments thus far have been nothing short of remarkable. This site will give you a glimpse into one of the most robust S&P trading systems to be found anywhere at any price.
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S&P close to breaking downside minor support levels
Cumulative Volume in S&P 500 and S&P Emini has begun to deteriorate again. CV in Emini was last back below November 1 support low even though S&P Emini prices remain somewhat stronger. Call/Put Dollar Value Flow Line (CPFL) continues to underperform …
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Market recovers from losses, but resistance remains
Cumulative Volume in both S&P 500 and S&P Emini has been in synch with S&P, but on relative basis has not recovered as much of decline from May high as has S&P index. While S&P 500 has recovered about 65% of price losses since May high, …
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