eMini Day Trading Systems since 1997

eMINI DAY TRADING SCHEDULE

One of the most relevant and basic aspects of day trading is to define how to use the trading equity of $5,000 that we recommend, and above all the Starting Equity of $2,000 should be traded.

It is not that we will need to USE the full $5,000.00 but rather taking a slice of $2,000.00 to start day trading, leaving the balance as a cash reserve.

If we consider that that the stop for day trading the ER2 is 1.50 points or $150.00, it would take TWELVE consecutive losses (plus commission of about $5.00 per contract round turn) to wipe out the Initial Equity. That is very unlikely – we would dare to say that it is an impossibility - to happen with the disciplined trader, even when the market is not trending. With the ES it would take 22 consecutive losses to wipe out the same $2,000.00.

Some traders may wonder why not allocate just $2,000.00 only and then start trading. The fact is that it is unlikely, although not impossible, that each day trader will start hitting the right buttons from day one.

The majority of traders may start with initial daily losses and in spite of some winning days they may bring net losses for the first couple of weeks. This will not be caused by our system but rather because most traders will have some residual habits from other eMini day trading systems that will take time to get rid of. Someone said that “the diminutive chains of habit are generally too small to be felt till they are too strong to be broken”. How true.

The psychological pressure that will result from initial losses will be very hard to overcome and the eMini day trader may end up by committing mistakes that may very well be avoided by having the cushion of $3,000 that we suggest. Believe me, trading with an equity of less than $5,000.00 may sooner or later be a mental burden that should be avoided at any cost.

The number of those “old habit losses” will decrease as the trader gets more familiar with the fast trading signals provided by the new indicators. But losses will still happen later on because the markets don’t evolve in a linear and orderly fashion.

In chapter 1 of our latest (May 2007) eMini Day Trading system manual we attempt to define the potential profits a trader may reasonably expect from day trading the eMinis using certain levels of average daily profit. We start with the premise of obtaining an average (and that is the operative word) profit of $50.00, net of commissions and losses, per contract and per day.

We will make three comments on the theoretical, but mathematically correct, objectives of the above spreadsheet.

The first is that the limit of 10 contracts per day that we defined is very reasonable but hardly the limit for the average trader. If the trader can increase gradually the number of daily contracts assuming the allocation of $1,000 per contract until 10 contracts are reached at the end of three months, then he or she would be able to exceed that theoretical limit.

The main reason is that by gradually building the confidence in the trading signals, the trader will also be improving his or her own mindset and be able to trade a larger number of contracts. Thus in the first four weeks only one contract will be traded, in the following two weeks we will day trade two contracts, two weeks later we can trade four, etc.

The other comment is that at the end of week 13, the excess equity is already $6,500. That is cash that will not be used since for trading 10 contracts the trader needs only $10,000, double the minimum set by the exchanges. So the trader can use that excess in other trading like EOD the T-Bonds or the Grains or in any application that he or she deems fit.

The third comment is that all of the above is based on the assumption that the trader observes without reservation the two cardinal aspects of day trading discipline that we analyze in the manual:

• trade signals only from full bars
• never tinker with the maximum stop of 1.50 points for the ES or the ER2 (slightly different stops are suggested in the manual fro day trading the NQ or the YM5).

Every trader must define goals when trading. The spreadsheet displayed should help in reaching those objectives. They will not evolve orderly since there will be days with losses. But there will also profits larger, often much larger, than the $50.00/day and contract that we estimated.

It is fitting to mention that in Chapter 7 of the manual, dedicated to Risk Management and Profit Control, we describe how to trade in Survival Mode. That is the safest way of controlling the losses when the chips are down because it shows how to trade with the lowest probability of losses.

One may wonder why not using only that approach and the reason is very simple: traders would not reach the profit potential that is identified by the Trading Rule that we analyze in Chapter 2(?). The risk of losses will certainly increase but the probability of more winning trades will end up by providing a larger net potential profit.