Trading Eminis During the Globex Session
A growing number of active E-mini traders live outside of the U.S. and Canada. Another large group of traders are not able to monitor live market action through all or even most of the cash-session hours between 9:30am ~ 4:15pm est. Does the fact that these traders are not around for the cash-session periods mean there’s little opportunity for them to profit from? Not at all.
U.S. stock index E-mini futures markets are open almost 24 hours per day, Sunday evening through Friday afternoon. In the past those periods were mostly dull to completely dead, especially during periods of low market volatility. Obviously that’s not the case these days, with volatility near all-time high extremes as measured by the VIX. Regardless of how we slice it, overnight market action through the GLOBEX session has become much more active in the recent past than ever before. Part of that is heightened volatility, but most of is due to increasing global interconnections between financial markets. What happens in foreign currencies or crude oil markets overseas now has direct impact on U.S. stock market futures to increasing degrees.
We can see by nothing more than a quick visual glance at charts that overnight market action from 6pm est right through 9am est offers plenty of price movement and directional action inside E-mini futures markets. U.S. market action from the prior cash session period still dictates movement from the rest of world markets through the overnight session. However, global market action is often the tail wagging this dog. What happens during the Asian or European markets due to economic, cross-market or interest-rate factors can cause sharp directional moves in the U.S. pre-market futures.
Crude oil prices, USD/JPY carry-trade pricing and interest rate decisions by the ECU or BOE cause fluctuations in the overnight U.S. markets that may be completely smoothed out by the 9:30am est opening bell. But the short-term traders have plenty of chance to catch those overnight swings, up or down.
Trading the S&P 500 E-mini (ES) allows use of protective stops trough the overnight period that will in most cases be executed. To a lesser extent, Nasdaq 100 (NQ) E-mini futures are tradable in the “overnight session” as well. Other E-mini symbols trade too thinly outside of pit-session hours to trust protective stops against extreme moves without serious loss potential.
That limited liquidity is good news for retail traders. Overnight markets even in ES or NQ are too thin for program trading by the big market players. This keeps price action rather smooth and methodical when tapes are moving. Heavy sideways chop and those violent v-turns in price direction caused by blackbox program trading are replaced by tapes that stair-step higher or lower in deliberate fashion. Some of the smoothest and easiest price action to trade inside a given day often comes during the overnight stretch. Not to say that opportunity for profit is everywhere: there can be long hours of completely dead tapes that go nowhere at all. But when price action is moving overnight, it usually does so in pretty methodical fashion.
Points Of Action
Three of the more active periods come at the reopen of futures trading past cash session end, the open of Asian markets and the open of European markets. Those specific zones are prime times for trade entry signals that have potential for follow-through directionally. Sharp price moves at random can happen anytime… pretty hard to predict unexpected news breaks. For traders trying to plan their schedule around most favorable times for trading the overnight stretch, those three segments are where the majority of breaks from consolidation occur.
A fourth major period of pre-market activity happens around the 8:30am est economic news release. Many of the major econ news reports, especially the monthly non-farm payroll report can be counted on for consistent directional action in the charts. Many times it is impossible to trade the actual news release itself: attempts to strangle the market with sell orders staged below and buy orders likewise parked above price levels heading into a various report sees bid/ask spreads flare and wild whipsaws stop out trade attempts on both sides before a real directional push takes hold. Trading the action that follow initial news reactions are where most of the clearest trade setups ensue.
This example of overnight price action from a session in November 2008 shows where a clear wedge consolidation broke to the upside and signaled long trade entries that soon worked for 10+ points of potential profit. Price movement was slow and deliberate, taking a couple of hours to unfold but the steady plod higher was a smooth trend all the way.
Nasdaq 100 futures have enough liquidity in much of the overnight session to be traded effectively. Another example of price action breaking up from a wedge consolidation that rose +20 index points in very deliberate fashion. The NQ almost always trades smoother, straighter and more directionally than ES does at any time during the cash market sessions. It is at least as smooth & directional during the globex session, too. I view the NQ E-mini futures symbol as least dynamic of all… it usually trades inside the overall dollar per contract range of ES and certainly inside the range of Russell 2000 futures. That said, NQ futures are probably the most orderly and deliberate in price movement of any E-mini futures symbols. Retail traders who opt to focus on the NQ symbol primarily or alone can do well with this market outside of the cash session period, too.
Constant bar charts, i.e. tick setting or volume setting bars instead of time-based charts are some traders’ choices to work with. Constant bar charts paint one big bar during lulls and then show smaller bars when the pace of price action picks up. That is one way of filtering where ultra-thin tapes transition to an increase in volume which precedes directional market action. I personally watch both time and tick charts at any point of the trading session, inside or outside cash session periods. Tick or volume charts will give a clear visual of where price has moved while nil contracts traded versus where real movement begins to happen.
My preference is to trade the time charts during periods of low to normal volatility, leaning towards the tick chart view when volatility is high. Knowing which period we’re in is pretty self-evident: the charts demonstrate which is what at a glance. Lots of price bars and directional movement overnight on the constant-bar charts = high volatility. Contrast that by few overall bars that are rather long, and we have low volatility with nil volume trading during the clearly visible lull.
As noted earlier, some of the bigger directional moves follow big trend days in the cash session. Late-day rallies or selloffs that run to extremes often reverse sharply once the program trading ends at 4:15pm est. Extreme pressure on the market from cascading blackbox programs in trend afternoons often v-turn measurably once the computer bots kick off and pressure abates. Trading the globex stretch from 5pm est through 10pm est or later following extreme afternoon trend moves have high potential for profitable action.
Non-U.S. index markets (and of course) currency markets are available for trading outside of the cash session period for U.S. equity markets. However, financial markets continue to become more global and directly correlated all the time. That trend will only continue, at a faster pace than ever before. A growing number of traders around the world will continue flowing into the U.S. markets during off-peak hours. That continual trend will in turn make trading the globex periods more active and fruitful. It’s a self-perpetuating trend. In the not-too-distant future, U.S. equity index markets will trade pretty much around the clock in the same manner currency markets do right now. The choice to trade E-mini index futures outside of cash-session hours is a popular one, and growing in opportunity for all involved.
Austin Passamonte is a full-time professional trader who specializes in E-mini stock index futures and commodity markets. Mr. Passamonte’s trading approach uses proprietary chart patterns found on an intraday basis. Austin trades privately in the Finger Lakes region of New York. Click here to visit CoiledMarkets.