The E-Mini S&P 500 -- How Do You Successfully Trade It?
By By Bryce Gilmore of www.wavetrader2004.com*
Posted: Jul 14, 2006
My response is -- with great difficulty -- unless you have a winning approach with a solid plan; then, you’ll have no difficulty in following the E-Mini.
Two Things You Need to Know before Getting Started
Before you set out to make it as a futures trader, there are two things you need to realize.
Number 1: You have no chance of success unless you first set yourself up correctly with the right equipment and software and a reliable data provider that can supply all your needs. My choice for this is eSignal, with the Advanced Charts package.
Number 2: More than 90 percent of people who attempt to trade futures markets lose money and blow out their accounts within a few weeks and, at best, hang on for approximately 6 months.
But, the reason this happens is because they are not prepared properly, either with the correct plan or with the psychological approach it takes to make the correct decisions under pressure.
Two Infallible Rules for Trading SuccessTwo infallible rules to trading success you must learn and that must become second nature to you before you put on your first trade are as follows:
Rule 1. The trend is your friend.
Rule 2. Let profits run and cut losses quickly.
To become a winner in the market, you need to become familiar with the idiosyncrasies of market mechanics.
What a Chart’s Waves Mean
If you study some charts, you will see that price movement in markets extrapolates into waves. These waves are similar to the way waves in the ocean move along, and they change form on the surface as the ground below becomes shallower.
Basically, we have three forms of waves we need to monitor. Large waves, medium-strength waves and the shorter-term, choppy or flowing wave movements that occur on a daily basis.
On a daily basis, we have intraday trends that will reverse direction on and off throughout the trading day. The market price will move from support to resistance and back to support again or vice versa due to intraday trader activity. When the market moves up or down and penetrates medium-term support or resistance levels, it activates another group of traders to make trading decisions that will affect the current outcome. And, up the ladder it goes until you get into situations that will force major longer-term traders into trading decisions.
This overall activity going on behind the scenes in the market creates a “money flow” that causes some moves to extend and others to remain in tight ranges. Until you can understand what motivates these individual groups of traders, you have no hope of consistently winning as a trader.
Each group of traders with the majority of influence over where prices will eventually travel understands this money flow and works its plans on three or more levels. This way each type of trader can either confirm or refute his or her individual trading plan as the market moves along.
The Importance of Support and Resistance LevelsBefore you start trading, you first need to understand why the market moves between implied support and resistance most of the time. These implied support and resistance levels are exact levels that traders work from, and, when they are reached, you can be sure (most of the time) that the levels will attract new buying or selling at that moment.
If you know about these levels, you do not need a “mechanical black box” to trade with, nor do you need to suffer the draw-downs that come from using such methods.
What you need is a price-monitoring system that alerts you to the implied support and resistance levels that will influence the various groups of traders who come in buying or selling as the market reaches them.
I know where the levels are (and they are dynamic -- changing with the market waves), so all I do when the market reaches them is monitor the activity and then make my decision to go with the current “money flow”.
Market direction is controlled by price action, and it’s important to monitor the price action, so you always have a clear view of what the “smart money” players are doing. If you have no idea where the “smart money” is going, you have no hope of making it in this business.
I have included, here, a couple of charts showing larger-degree waves and medium-degree waves. However, the real action and expertise in trading profits takes place in the lesser-degree waves, requiring a more extensive illustration of the trading approach necessary throughout the average trading day and the subject of future articles.
*Reprinted (and modified) with permission from Bryce Gilmore
Read More Weekly Trading Education Articles.
