In day trading basics we discussed the advantages of emini trading systems. In this article, we deal with the primary downside – risk.
First let us identify the risks in your emini system – trend reversal, time delays, slippage, over-trading, and premature entry or exit.
- Trend reversal – this common occurrence is unavoidable. If your emini system or PLAN is well conceived and tested, it will produce more wins than losses. However, there will be some losses. The day trading risk management strategy to protect you here, is to put in place a pre-determined stop-loss order that will execute automatically if the price movement of the emini reverses and trends in the opposite direction. Some will ask if a trailing stop-loss would not be better as this would allow you to retain gains you have made already. The answer to this is to use the pre-determined fixed stop loss initially, and then only if the momentum is perceptibly strong in your direction AND you have already exceeded your exit point, then you could substitute your fixed stop-loss for a trailing stop loss with the short fuse so that you lock in some additional upside.
- Time Delay – sometimes you will enter a trade in line with the rules of your emini system with the expectation of a decent movement in the prices, and nothing happens – basically the price moves sideways. In these circumstances it is better to close the position and wait for another opportunity. This is because the trend you expected has clearly not taken place, and now it is anyone’s guess if it may breakout either up or down. So rather than be forced to rely on the stop-loss you have in place and have a 50/50 chance of losing the stop-loss margin, rather take the small profit or loss you have now, close the position, and wait for the next ride.
- Price Slippage – this occurs when the market order you have placed it executed at a different price and you lose more than you expected on the trade. This is also a fact of life you cannot avoid in day trading. The key is to be trading in an environment and market that minimizes this possibility. Day trading emini futures automatically give you the best odds in this regard. Price slippage is minimal when there is a large volume of contracts traded (avoid the night hours trading) , the bid and the ask prices are close, and the security traded is popular with widespread trading. The S&P E-minis meets these condition. Be careful of using limit orders because if the prices are moving very fast, you may not get filled at your fixed price, leaving you in a situation where you take a much larger loss than you expected compare to you stop-loss price point.
- Over-trading – Remember that every trade bears a broker commission. The key here is not to be making too many false starts. If you have practiced with your emini system before live trading you should have the odds in your favor. If you find you are not winning more than losing, or that you are entering trades that frequently go nowhere, then stop trading and practice a bit more or change your technique or PLAN. The same principle applies to frequent premature entry or exits – practice more.
Remember that with an eminis trade you are trading with a 1:1 value. It is similar to trading a stock. The delta is 1:1. If the price moves a dollar, your value changes by 1 dollar times the number of shares or contracts you have bought. In the case of S&P500 e-minis, the price moves one tick at a time and the value is $12.50 for each tick. So the prudent thing to do, especially when you are new at this, is to only take one contract and only look for a move of one point. – this will keep your exposure down. An investment of about $1,000-1,500 for a gain of $100 in a few minutes. Do this 3 or 4 times and you have $300-$400 for your trouble.
Emini trading money management is a very important subject that you MUST get right! A full and fail safe methodology is taught by Rockwell Trading in their Money Management Home Study Course. Get it now BEFORE you lose your shirt! It’s a lot cheaper than learning this later AFTER your account has been decimated by losses you did not expect. That is why we recommend the emini day trading classes contained in the Day Trading Home Study Course. After checking out a number of day trading courses, we found that these classes contain all you need including specific day trading strategies that will give you success, and they have a major emphasis on protecting you capital.
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