When traders talk about trading E-mini futures,
E-mini S&P 500 or “ES” is the first thought that usually comes to mind. It is by
far the most popular stock-index market traded, by retail traders and
institutions alike. That widespread popularity is not necessarily a good thing.
Program trading arbitrage attempts at capturing the difference in price values
per tick between E-mini and full-size S&P contracts creates a lot of sideways
buzz in price movement. Other program trading efforts by funds and institutions
involve arbing the futures against cash index pricing with SPY shares, futures
against cash SPX options, futures against baskets of big-cap stocks and a
plethora of other complex spread equations.
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That type of layered congestion keeps the E-mini
S&P constantly retracing its steps. Between directional swings of price movement
up or down, there is consolidation with any market. That’s how the pattern of
price action plays out… consolidation leads to directional expansion, which
then settles into consolidation. That cycle repeats itself over and over again,
through all time frames and conditions. In the case of E-mini S&P futures,
consolidation is created and emphasized by any number of arbitrage programs
playing tug-of-war with the tapes. It’s not like the index is going through the
usual progression of accumulation, distribution and rest. The ES is constantly
being pushed around in a small sideways range by sideways trading strategies
designed to arb temporary price discrepancies.
What does this mean to retail traders?
things. Because the ES contains so much sideways
congested price movement or “noise”, a lot of E-mini traders direct their focus on
that. They work really hard at developing strategies that capture mere ticks of
profit as successful trades. All manner of complex initial stop-loss, multiple
contracts scaled out of to exit and bigger risk / smaller reward ratios are
toyed with in search of success.
With very few exceptions, retail traders all
fail miserably in these attempts. The concept of trading tiny scalps within
sideways noise is just an illusion, not a viable path to success.
Money is made for traders when price action is moving directionally. It
stands to reason that the more directional a symbol is, the more opportunity for
traders to buy low/sell high or sell high/buy low exists. Nasdaq 100 E-mini
futures or “NQ” are far superior to the S&P futures in this regard. NQ futures
lack the dogged back & fill behavior of ES futures. The NQ is smoother,
straighter and much more directional. It spends less time in consolidation. When
the NQ breaks from consolidation, it moves away from those areas where traders
enter long or short trades without constantly chopping the initial stops.
NQ futures have more than enough liquidity for
any retail trader. With 300k to 500k contracts traded per day, blocks of 50 to
100+ contracts clear constantly with nil or no slippage on the fills. At $20 per
index point with four ticks inside, the $5 tick size is relatively tight. An
average intraday price range greater than 20 index points creates plenty of
opportunity for profit from directional swings.
Too many traders place emphasis on potential
profit in the wrong areas. One of the mistakes I’ve heard & read about is a
correlation between average true range of a symbol and/or tick size versus
commission costs. The fallacy logic is that one symbol offering greater range or
smallest tick size therefore gives best “bang for the buck” when it comes to
That ill logic is a red herring. Trade costs are
highest – worst in symbols that move sideways excessively, creating more trades
due to stop-loss orders being hit in persistent chop. Trade costs are lowest
overall in symbols that require fewest trade attempts to capture profitable
swings. Fixating on commission costs and shaving a dime here & there to lowest
possible per-turn rate is pennywise and dollar stupid relative to focusing on
which symbol requires the fewest trades to capture price movement going up or
If it commonly takes a sequence of long, short
and short in the ES to capture the initial $200 per contract price move lower
whereas same signals in NQ are long and then short once to capture an equal $200
per contract profit, you saved yourself one commission cost in the entire
exchange. That type of trade efficiency goes a lot further to shaving the bottom
line than upping volume of contracts turned just to save another 20 cents per
turn. Dollar-wise efficiency is one of many strengths the NQ offers. It makes
straighter moves and has much less noise than ES. Therefore, a solid strategy to
trade it will give fewer trade signals with higher win percentage ratio as a
10min Chart: NQ
An example of intraday behavior for the NQ is
shown from May 12th. Price action opened just above the daily pivot point (black
line) and moved lower to test for support. A lift from there broke through R1 (thin
green line) and pulled back in methodical fashion before lifting to R2. A break
above that resistance and pullback into what is now support then lifted further
to new session highs as one would expect from that sequence in the afternoon.
Total price range was just over 40 index points
from low to high, an $800 per NQ contract span. Smooth, deliberate, methodical
and directional. Terms that apply to the NQ more than any other E-mini index
symbol to date.
All markets are tradable, and all markets are different. Traders who are
still struggling to create success and/or searching for their own personal ideal
symbol would be wise to consider trading the NQ. It is the #2 E-mini contract in
volume and open interest for a reason. Many professional, full-time retail
traders are there. A good place to be for those who prefer less noise and more
honesty in price moves signaled.
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