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Is Your E-mini Trading System Built for the Long Haul?

January 15, 2020 by Daniels Trading| Futures 101

One of the premier destinations for systems traders is the collection of E-mini futures contracts offered by the Chicago Mercantile Exchange (CME). Featuring products based on the leading equities indices, metals, currencies, and energies, the E-minis offer countless opportunities.

For traders who develop a viable E-mini trading system, engaging this collection of exciting markets can be a lucrative enterprise. However, markets are dynamic in nature―what worked today may not work tomorrow. As a result, it’s imperative that you be able to evaluate and retool the trading system to keep it operating at peak performance.

The Ins and Outs of Systems Trading

Achieving longevity in the financial markets is no easy task. Subsequently, many traders rely on a robust E-mini trading system as a way of sustaining long-haul profitability.

A trading system is a rules-based approach to the marketplace. Strong systems clearly define the following basic tenets of trade:

  • Market entry: A trading system provides the user with trading signals, or queues on when favorable conditions exist in the market. When a signal arises, it’s up to the trader to decide whether or not to execute the trade.
  • Position management: Knowing when to exit an open position is a key part of making money in the markets. Profit targets, stop losses, and advanced functions such as multi-bracket orders are approaches that traders frequently use.
  • Risk vs. reward: Quantifying risk is a critical part of any trading system. Defining position size, risk vs. reward ratios, and money management on a trade-by-trade basis are integral system functions.

A comprehensive E-mini trading system includes rules that govern each of the above items. It may be algorithmic, automated, or even discretionary in nature. No matter the basis, you must follow the rules religiously; if you don’t, your system will cease to exist.
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E-mini Trading System Management

In order to profit over the long haul, you must ensure that your E-mini trading system is operating at peak performance. Doing so means regularly taking inventory of your system’s efficacy.

Over time, the advantages of a specific trading system have a tendency to break down. This phenomenon is known as edge decay. Depending on the strategic parameters of the system, edge decay may occur for a variety of reasons. Undue latencies, evolving market conditions, and incongruencies between risk and reward are some of the common culprits.

To avoid the pitfalls of edge decay, here are a few areas of system management that you should consider routinely scrutinizing and questions to ask as you do so:

  • Strategy
    • Is the trading strategy relevant to the evolving market? 
    • Are risk and reward in alignment, or is market state undermining the integrity of the system?
  • Resource Inventory
    • Do available resources complement stated objectives?
    • Is there enough capital available to trade the system properly and safely?
  • Technology Maintenance
    • Are the internet connection, computing power, and software platform operating at peak levels?
    • What, if any, undue latencies exist? Do slippage and unfilled orders frequently hamper profitability?
  • Comparative Performance
    • Does the system perform well across a sample of unique products?
    • Are executed trades producing historically “normal” profits and losses, or do results appear random? If the latter, how large is the variance?

No matter what type of E-mini trading system you have, at some point it will likely falter. Even the most sophisticated black-box trading systems have a limited shelf life before an overhaul is needed. However, given the proper attention, it’s possible to preserve the strength of your system for weeks, months, and even years.

Interested in Becoming a Systems Trader?

In one form or another, systems trading is a popular way of engaging the futures markets. Whether your system is algorithmic, automated, or fundamental in nature, rules-based methodologies can provide you with a structural framework that promotes consistency.

To learn if systems trading is right for you, download your free copy of Intro to Trading Systems, courtesy of Daniels Trading. In it, you’ll find practical answers to both elementary and advanced questions related to systems trading.

Demo your free trial of dt Pro today

Filed Under: Futures 101

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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