How to Succeed at Trading the Emini S&P500… Sort of

An “e-mini” is an electronically traded futures contract that represents a portion of a standard futures contract. As futures contracts, the e-minis constitute an agreement to buy or sell the cash value of the underlying index at a specified future date. The contracts are sized at a certain value multiplied by the futures price; this value depends on the particular e-mini. The Emini S&P 500, for example, has a contract size of $50 times the Emini S&P 500 futures price. If the value of the Emini S&P 500 is $1,320, the value of the contract is $66,000 ($50 x $1320). The value of the contract changes as the price of the futures moves.

Mini contracts are available on a range of products, including indexes, metals, forex and commodities. However,traders are referring to the e-mini stock index futures – and in particular, the Emini S&P 500 – when discussing “e-minis.”

A stock index is a statistic that reflects the composite value of a selected group of equities. The S&P 500, for example, is an index comprised of 500 stocks chosen for market size, liquidity, and industry grouping. The Dow Jones Industrial Average, on the other hand, is an index made up of 30 of the largest and most influential companies in the United States. Stock index futures allow traders to buy and sell the strength of an entire cash index without having to own every individual stock, making them a practical trading instrument. Each stock index future trades on a multiple of the underlying cash index, and because they are not based on a tangible commodity, they are settled in cash.

The Chicago Mercantile Exchange (CME) introduced the first e-mini product on Sept. 9, 1997 when it launched the Emini S&P 500. This smaller cousin of the S&P 500 enabled more participation in the stock index futures markets because it traded at one-fifth the size of the full-sized contract, making it much more affordable to individual investors and traders.

The daily settlement prices for the e-mini contracts are the same as the regular-sized contract (based on contract month). As a result, a position with five e-mini S&P 500 futures contracts (that each trade at one-fifth the size of the full-sized contract) has the same financial value as one full-sized contract in the same contract month (assuming both positions are on the same side of the market).

The most popular e-mini stock index futures contracts include the:

• E-mini S&P 500 (ES)
• E-mini NASDAQ-100 (NQ)
• E-mini Dow (YM)
• E-mini S&P MidCap 400 (EMD)
• E-mini Russell 2000 (TF)

When it comes to the Emini S&P 500 (ES), it’s no secret that we have had a terrible past together. It’s also public knowledge that I don’t trade the ES anymore. There are many traders out there who still do trade the ES, and they are successful. I, unfortunately, am not one of them. But, the real question is why not?

Like many new traders, early on in my trading career, I traded the Emini. Back then the ES provided enough liquidity (and it still does), and it moved with some consistency and conviction. These days, in my opinion, not so much.  Let’s face it: all markets have changed and will continue to change. As the ES slowed down more and more, I began to fail more and more. I had no idea why this was happening. As far as I was concerned, it was purely the markets fault, and there was no way it could be me or my methodology, or was it?

I had to face the facts; I was doing horribly with the Emini. I had a conversation with my broker (side note: remember when you could talk to your broker?) about my situation, and he suggested I trade other instruments.  But, how could I?  “I identified myself as an ES trader” and that was that. My broker then made the bold statement that the ES was slow, and it just didn’t move like it used to, and perhaps I needed to go onto an instrument that provided a little more “action” and maybe suited my trading style a bit better.

Now we are talking here, “my trading style”! Early in late 2008, the S&P 500 moved great, these days, not so much. So rather than fight my trading style, I chose to look at other instruments to trade that would provide the moves that I needed. So how is this article about being a better Emini trader? Isn’t? It’s about adapting and changing to different market conditions to help ensure my success. In my opinion, not trading the ES is the best way to be successful at it.

Can you be successful with the Emini S&P 500 using the Diversified Trading System (DTS)? You could be, but trading instruments that provide movement will give you more trading signals and opportunities.