Trading Commodity Futures - Intuitively Day Trading The S&P 500 and E-Mini - PART 2

By Thomas Cathey

Every trading market has its own special patterns and oddities that will communicate its intentions. Patterns don't always work every time of course, but even that can be a clue of underlying extreme weakness or strength. Just like knowing a spouse well, learning to read your special market can pay dividends. Read on to learn more...

More Observations From My Trading Notes:

“No chasing – buy only into panics or corrections and with the main trend.”

I find if I cannot get in within one-half point of the high or low, I should let it go. I'm talking about a retracement back to the high or low. Too often I have regretted chasing the market, even for less than a full point. These expenses add up when getting in and out. Most good moves with the trend last about three to four points or so before a minor correction.

If you give up a point getting in and a point getting out and add in commissions for e-minis future contracts [which are high for contract size anyway] then you are left with a little under two points net profit. Factor in the losing trades and you are going to be a break-even trader. There are many break-even e-mini futures traders out there. You must learn to stick your hand in the fire at the price extremes to get an edge on the competition.


"Day trade only while watching the action.” There was a time in the mid 90's when I couldn’t take the pressure of watching the futures market after I got in. I would sometimes do emotional things that sabotaged the trade, even if it was a winner. The first correction, even when still profitable would get me out often at break-even after expenses. Of course, the market would continue on favorably without me.

I then tried putting in a stop below my entry by 2-3 points and take a walk in the woods for the expected duration of the trend. I would come back 45 minutes later and sometimes see tremendous profits. And other times I would see that I had a great profit, but the market had reversed and came all the way back down to entry. Bottom line is that I decided I needed to find a way to sit on my hands and take the heat in real time.

Having TIME objectives helps a lot here. Price action is what everyone watches and it will make you crazy. E-mini price action is only “accurate” and means something at the tops and bottoms. During the move there are many fake outs. Probability will reward you over time if you can milk the trend for it’s maximum potential.

Try not to trade in and out too often. It's difficult to enter the market with low risk. Once in, you might as well as make it count. When thinking about taking a profit, make sure the market shows definite signals that the trend is about to turn. A futures price panic is one of the most reliable indications that the move is over. Heavy volume and banging into major support/ resistance helps too.

At one time I used Fibonacci retracements, but have discarded them in favor of simpler, horizontal lines from recent price action. The only Fibonacci retracement that seems to be reliable these days is the 78% retracement. This almost takes out the complete previous move. This is a good thing, since you want a clean-out. The 61.8% retracement seems too pat for me and gets cleaned out as often as not. But this changes over time. You just have to see what’s currently working and use it.

Part Three of Four Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his TimeLine Trading market predictions and get his complete 44+ lesson, "Thomas Commodity Trading Course" - they're all free. Main site:

Article Source:

No comments: