Why Trade Emini Futures? (10:23)
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It’s pretty obvious that I’m a fan of trading Emini futures – after all, this website is called Emini-Watch.com. But choosing to trade Emini futures was not a random decision. It was the result of trading almost everything else and then finally settling on something that had fundamentally good trading “characteristics”.
For me, those “characteristics” involve three things:
- Minimizing the number of decisions you need to make
- Accessing the maximum information to make decisions, and
- Having “good” trading volatility.
Why Trade Emini Futures: Stocks mostly follow the index
Why Trade Emini Futures – Correlation of Individual Stocks with Index
The chart above shows that the movement of individual stocks is highly correlated with the stock index. In fact, studies have shown that 80% of a stock’s movement is driven by the stock market direction and the industry group that stock is part of.
So to trade stocks you first of all need to assess the direction of the overall stock market. Then you need to choose a stock (or ETF) to buy or short from literally thousands on offer. Well, that’s too much work. Just figure out the direction of the index and leave it at that – trade Emini futures. No need to go to the second step and filter out stocks to trade.
Oh, and if that didn’t convince you not to trade stocks then check out this article. The link title says it all: Market maker spends his trading day trying to rip you off.
Why Trade Emini Futures: Forex volume data is incomplete
Why Trade Emini Futures – Central Bank Intervention in Forex
In days gone by I used to warn traders off Forex. The primary reason was there was no volume data for Forex instruments. This was the result of a quirk of history and the fact that there was no central Forex exchange and everything was done via banks who didn’t share volume data.
Well all that has changed with the advent of Forex futures traded on the CME exchange. An increasing percentage of Forex trade is coming via their Globex platform with volume data available just like the Emini.
However, you still have to pick an instrument to trade and there’s quite a choice: Euro, Pound, Aussie, Swissie, Dixie, Yen, Won, Real, etc. Plus, as the chart above illustrates, the central banks intervene from time to time and can cause massive moves (Yen and Swiss Franc shown). I’d hate to be trading when the central bank starts interfering!
However, you always need to keep an eye on the longer term trends in the Forex market because you need to keep your Emini futures trading capital in an appreciating currency. Just make sure you’re charting the Forex futures contracts from the CME.
Why Trade Emini Futures: Commodities are inconsistent
Why Trade Emini Futures – Plenty of Commodities to Trade
Commodities either have too much volatility or not enough. If you’ve ever been stuck in a lock limit up or lock limit down move, you’ll know what I mean by too much volatility.
This is a tricky one – I don’t feel strongly that they are not good markets to trade. Crude Oil in particular is a very disciplined and deep market. Plenty of trend moves to catch and the wide number of types of players keeps the market from being gamed. But if you choose something like Orange Juice to trade, you’d better know your stuff because the Pros are all over this market.
Why Trade Emini Futures: Bonds are too sleepy
Why Trade Emini Futures – Daily Number of Trades Emini vs Bonds
Big money and old money trades the Bonds – not many Amateurs try their luck. And frankly they’re a little bit sleepy.
The chart above shows the number of trades that take place on the Emini versus the 30 year bond contract. There’s a factor of 10 difference. In the early part of the charts Emini futures are averaging 0.5 million trades a day. But for the same period the Bonds are only averaging 50,000 trades a day.
That means there’s less intra-day volatility and less trending swings for day trading.
Why Trade Emini Futures: Stock indices are just right
Why Trade Emini Futures – Summary
So then lastly that brings us to stock indices and Emini futures. For me they have the perfect combination of minimum number of decisions required, maximum amount of information available to make decisions and “good” intra-day volatility.
So there you go. That’s why I trade Emini futures.