Frequently Asked Questions

What type of patterns and setups do you trade?

We trade a number of setups and patterns. Some patterns and setups are for countertrend trading in a trading range environment. Other pattern setups are for trading with the trend on a trend day. Many of the patterns we trade use Fibonacci ratios to determine the entry point, stop-loss placement and profit target objectives. We also trade setups that are momentum based, meaning momentum in one direction has come into the market and we will trade setups in the direction of that momentum. We use momentum indicators that help us gauge the momentum. We trade primarily the SP 500 E-mini contract where we find these setups on a regular basis.

Why trade the SP 500 E-mini contracts?

The SP 500 market is a very liquid market that trades almost 24 hours worldwide. It is an excellent market for day trading the pattern and trade setups we use. These setups and patterns tend to form on a regular basis offering trading opportunities allowing us to quantify the risk in each trade with specific profit objectives. Of course not all trades work and we always use stop-loss orders to manage the risk. Another reason we trade the SP 500 E-mini contract versus the full sized contract are the leverage and margin requirements. The margin requirements for trading the SP 500 E-mini are favorable to the large contract. Five SP E-mini contracts equal one full size contract.

How does the SP 500 E-mini contract trade in dollar value?

The SP 400 E-mini contract trades in full points. The smallest increment in the SP 500 E-mini contract is $12.50. One full point is equal to $50.00 per contract, as an example; a move in the SP 500 E-emini from 1545.00 – 1546.00 is $50.00. One quarter point is worth $12.50, one half points is worth $25.00, three quarter point is worth $37.50 and one point is worth $50.00.

I have never traded the SP 500 market could you explain what vehicle is used to trade it?

The SP 500 E-mini market trades in contracts. The contract size is one-fifth the size of the large SP 500 contract and is traded using the futures markets. The SP 500 E-mini contract is traded on the Chicago Mercantile Exchange (CME). Each contract trades in a specific month in the future and uses these months; March, June, September and December. Each month has a root symbol;

• March – H
• June – M
• September – U
• December – Z

The year of the futures contract is also designated in the symbol. These symbols are used for quotes and placing orders, as an example the symbol for the September 2007 SP 500 E-mini contract would look like this – ESU7.

The trader places the order for each trade using this type of symbol in their trading platform. The contracts “rollover” from one month in the series to the next month, this occurs on the third Thursday prior to the new contract month. For more information on the SP 500 E-mini contract visit the Chicago Mercantile Exchange website at www.cme.com.

What time frames do you use for your trades?

We always look at several time frames to determine the overall market and find support and resistance areas. These time frames include Daily, 60 minute, 15 minute and 5 minute charts. Using the longer time frame combined with short term time frames allows us to find specific areas of support and resistance that may offer a trading opportunity. We execute our trades using the shorter time frames such as a 5 minute chart or a 400 or 1600 tick chart.

How many trades do you do each day?

This is dependent on the volatility in the market on any particular day and the number of tradable patterns that set up each day. We would say on average we trade 1-3 pattern setups per day in the SP 500 E-mini market.

What type of orders do you use for your trades?

We generally will use limit orders for our trades, but will occasionally use market orders for specific market conditions such as a fast market or possibly a trending market. We always use stop-loss orders on each and every trade. The stop-loss orders are placed immediately following an entry fill into a trade and will use a stop-limit order for those. Occasionally we will use OCO orders (one cancels other) and GTC orders (Good until canceled).

Why do you teach your trading methodology?

We went through the same learning curve as any other trader. When we started out there were not nearly as much information, charting software packages and learning tools as now. Our philosophy for teaching is to help the student of trading see through our eyes and learn from our experience in a real-time trading environment. We feel this accelerates the learning curve and allows the student’s opportunities to ask questions’ pertaining to the markets as they are unfolding. We feel we can offer a great service and value. Hopefully, we can shorten the learning curve and strengthen trading skills.