We recently did a video outlining the 3 essential keys to determining if a chart is worth trading and now let’s see if the Russell e-Mini is a market worth day trading and if so what chart.
Let’s first review the 3 essential questions:
- Are there enough trades in our session?
- Are the trades the proper size? What I mean by that is is the risk acceptable?
- Then the final question, can I quit positive a majority of the time with minimal trading?
The goal here is to be able to quit each session with a positive result, so that we can grow our account on a steady basis. Then over time utilize the power of compounding and just increase our position size as we grow our account.
There’s nothing worse than giving your hard earned gains back to the market. We have to build in some sort of safeguard that allows us to keep our profits and grow our account steadily . We also have to establish some rules, for example:
- When are we going to start?
- How do we know when to quit?
- Other rules according to your trade plan
Let’s head to the chart and see if the Russell 2000 E-mini Futures market is an instrument we may choose to day trade.
The following is the transcript of the Russell 2000 E-mini Futures analysis
What’s our quitting time? We could either have a hard stopping time or X number of trades, or a specific goal if we reach it, then we quit within a certain amount of trades. That’s the one I like. We call that the power of quitting. Then other simple rules that we need to follow.
For the case of this video, we’re going to use the new Spotlight Power Trader strategy that I’ve been developing. We’re going to do simple things, for example, like adjust our entries and stops off of tens. Point basically a round number of 14, 15.00 14,16.00 if we get within one tick of that then we’ll adjust one tick beyond it. When we look at some examples you’ll see how that works.
That will help us avoid some bad trades.
This is today’s session, it’s still going, it’s a live session. You can see quite a bit of trades. There are some winning trades. Actually, it looks like most of these trades are winners, but it’s also late in the morning, so the first rule that we’re going to apply is we’re going to start looking for trades right when the market opens at 9:30 New York time.
Let’s go back and see how today would’ve done. This is just a random session, I like to go back to the beginning and just click through and think through what happens next.
Here we are at 9:13, that’s too early. This one here is at 9:29 and 46 seconds. Then it does hit the entry and it’s 9:30, but if you look at how fast it moves down literally 5 seconds after the start of the session it’s already passing through the entry. You could see that was a partial winner, but we’re not going to count that because it probably moved too fast.
We’re using an 8-tick momentum range bar for this example and we want to determine if this chart is worth day trading the Russell e-Mini.
We’ll look at a few Russell sessions here.
Then the first trade is a long trade and that’s going to be a losing trade. Losing trades do happen and that loses 19 ticks. Then we have this short trade right here. You’ll notice that the entry is right at 14, 18 and remember what I said if we’re on a round number we’re going to make a one tick adjustment beyond that. This entry would be 14, 17.9. it’s just one of the little rules we’ve established, so we want to make sure that we account for that as we’re looking through these examples.
This is a good example as to why we make that adjustment because it avoids getting short and instead we’re going to get long right here at 14, 19.2.
We have one losing trade of 19 ticks. We get long right here and it comes up and it hits its target 2, which is good for 13 ticks. If you’re trading a single position you’re still not quite positive, assuming you’re getting out at the second target, if you’re trading multiple positions you might decide to trail a second position, so that would be 19 times 2 would be -38 would be what this trade lost.
Then you’d have a 13 tick positive result and then it climbs up, you catch a nice runner all the way up. It’s very possible that this would get you to positive, you’d just have to do the math and find out, and then you would quit with a positive result.
Keeping it simple, we’ll just say we’re using one position, just for the sake of this video. We still need another winner and the next trade is a short. If we can get to target 2 that would be good for 27 ticks. You can see it does come down and hit target 2.
Today’s session required 3 trades to quit with a positive result, so that meets our requirement. We’re able to quit positive with minimal trading.
The size of the trade, well at $5 a tick, this one here was 14, I mean that’s only $70 in risk per contract. On the losing trade 19 ticks, that’s $95 so very affordable at $5 a tick and $50 a point. The Russell e-Mini meets that requirement for most people as well.
You don’t really need a large account to be able to trade the Russell e-Mini
What you want to figure is that the amount you’re risking represents about 2% of your account. You just have to do the math. So far this is a look at just one session. Let’s roll it back to some random point in time. We’ll just go back to here wherever that is and let’s just start clicking forward. In fact, let’s go to the beginning of this session and we’ll look at a few sessions and see if we can quit positive.
Ultimately, you want to look at 100 sessions.
Look at the last contract, for example, 3 months’ worth of trades or a little more. The more the better, but you want to just make sure you’re able to get enough trades, trades of the right size, and that you can quit positive a majority of the time with a simple set of rules. You can see right here 9:31 gets short, risking 27 ticks and that one comes down and hits target 2.
Basically, we’re hitting our goals, which is to quit positive, if we can get a target 2 winner we’re done for the session. One and done let’s go to the next session.
All right, so there’s a setup right here, but it’s right before our start time and it pops up too fast and as a result we avoid that trade. Now we’re just waiting for the first trade of the day and it comes right here, 9:34, and we make the adjustment on the entry to 13, 37.1, but it still triggers in and it comes up and hits target 2.
Again, our goals are met with just one trade and we’re moving on to the next session.
We’re keeping track, of course, of winning and losing sessions. You want to make a column of wins and losses and break evens and just chicken scratch it, 1, 2, 3, 4 cross, 1, 2, 3, 4 cross, and like this you can quickly count winning and losing sessions.
Next session waiting for a start time of 9:30, here’s 9:30 in here. Looks like the first trade of the day is right there at 9:33, 13, 42.8 is the entry. That’s going to come up and hit target 2.
So far we’ve looked at 4 sessions, including today’s session. Today’s session took 3 trades. This is the third session in a row, random session, where it was able to hit its goals on the very first trade.
This is the kind of chart that is worth pursuing
Obviously, we’ve only looked at a few trades, a few sessions, but we’re off to a really good start, aren’t we? If this continues, if you test this enough, you look at 100 sessions, it might take you an hour or 2 it is information that’s extremely valuable, will help boost your confidence, and then there are other things you can do to even flesh out a trade plan further.
So far you can see how effective this type of research can be for assessing if a chart or market is worth trading.
It’s quite simple.
If you have tools that are right there in front of you it makes a big difference. When we click on this trade I can quickly see what my rewards are to each target, what my risk is, my risk-reward ratios, which are typically favorable, as well as a visible trailing stop if we want to count that.
We can pretty much decide the style of trading that we want to assess in advance and have all the information right there, the entire trade and, of course, our spotlight trading technology, which shines a light on the trade with the use of these colors.
It’s a pretty creative way to use colors that’s built into this particular strategy that I’ve been developing. I am looking forward to releasing this new trading strategy to the public!