The E-mini lineup of products listed on the Chicago Mercantile Exchange (CME) offers traders access to a diverse cross section of asset classes. No matter where your expertise lies, rest assured that there’s an E-mini futures contract built to suit your needs.
Although these exciting markets provide opportunity, traders still must develop E-mini trading strategies that work to secure market share. Here are two methodologies that you should consider.
Trading the Wall Street Open
Among the many E-mini products, those based on the leading U.S. equities indices are the most popular. From the E-mini S&P 500, E-mini DOW, and E-mini NASDAQ to the E-mini Russell 2000, stock specialists from around the world engage these markets on a daily basis.
The most consistently active time for U.S. equities is the half-hour following each day’s Wall Street cash open. When the opening bell rings at 9:30 a.m. EST, a period of enhanced market volatility regularly hits the equities indices.
In response to the heavy order flow and participation, short-term and day traders deploy a variety of E-mini trading strategies that work to secure profits. Here are two strategies designed to do just that:
- Scalping: Short-term momentum traders often buy or sell in reference to support and resistance levels during periods of high volatility. The subsequent price action in the vicinity of such levels is capable of generating small but consistent profits.
- Opening range: A variety of E-mini day trading methodologies attempt to project a market’s entire daily range from its opening range. For the equities indices, this is typically done by observing the 30 or 60 minutes following the Wall Street opening bell. Traders use the presence of a prevailing trend, as well as defined high or low intraday values, to open either a long or short position in the market.
Each day’s Wall Street open is a key time for the U.S. stock indices. If you’re going to trade the E-mini S&P 500, DOW, Russell 2000, or NASDAQ, it’s worth watching the action immediately following the 9:30 a.m. EST cash open.
Reversion to the Mean
One of the great things about the E-minis is that they regularly attract participation from traders of all types. The result is significant volumes and relatively orderly price action. These two attributes contribute to overall market liquidity and efficacy of many E-mini trading strategies that work.
Markets that are not currently trending are said to be in a phase of consolidation or rotation. While consolidating markets are frequently choppy and difficult to trade, a reversion-to-the-mean strategy can be effective. Under a reversion-to-the-mean strategy, buys or sells are taken in opposition to a market’s extremes. In turn, traders realize profits from a move in pricing back toward a periodic average or mean value.
To illustrate, assume that the S&P 500 is going through an exceptionally sluggish period. Price action is slow and consolidating around the 3,000.00 psychological level. To capitalize on the rotational market, Erin the E-mini S&P 500 trader maps out an intraday reversion-to-the-mean strategy. She puts her plan into action given the following conditions:
- At the midpoint of the U.S. session, December E-mini S&P 500 futures have posted an intraday high of 3,010.25 and low of 2,999.75.
- Price is currently trading with modest volumes near 3,008.00.
- Erin identifies an area of three-hour consolidation in the vicinity of 3,004.00-3,006.00. With no fundamental market drivers scheduled for the late session, Erin decides that price is highly likely to return to the vicinity of 3,005.00.
- To capitalize on the rotation, Erin places a sell order for one contract at 3,008.75. A stop loss order is placed above the intraday high at 3,010.75, with a profit target at 3,005.75.
The risk of Erin’s trade is eight ticks, and the potential upside is 12 ticks. Given the two-thirds risk vs. reward ratio and limited up-front liability, this approach will generate long-term profits with only a modest winning percentage.
As Erin’s game plan shows us, E-mini trading strategies that work need not be glamorous―a simple reversion-to-the-mean approach can be a cash cow during quiet markets.
Finding E-mini Trading Strategies That Work
Trading the Wall Street open and reversion to the mean are only two E-mini trading strategies that work. To learn more ways to win in the futures markets, check out Daniels Trading’s Futures and Options Strategy Guide. Featuring 21 battle-tested methodologies, it’s an essential resource for the pursuit of your financial goals.