It seems most of the articles I read in the article directories suggest day trading exchange listed stocks. This is a bit difficult for me to understand, as futures contracts offers some distinct advantages over trading stock issues. As a longtime trader, I have extensive experience trading both of these equity instruments and understand the way both function. Not that there’s anything wrong with trading stocks, as good money can easily be made trading stock issues. In my opinion, though, trading futures contracts, especially the e-mini contracts, have a multitude of individual advantages so as to make them a prohibitive favorite for day trading.
Needless to say, I can hear the stock day traders protesting loudly as many have been very successful in day trading their favorite stock. I can understand this, as a certain amount of money can certainly be earned in the stock business. However, the leverage to maximize your gains simply doesn’t exist in day trading stocks. Further, day trading stocks entails a significant capital outlay in order to get started. On the other hand, getting started in the futures trading business requires a far smaller outlay of cash and seems better suited for the smaller investor.
From the onset, though, any futures day trader realizes that the high level of leverage that futures trading involves will maximize your profit; but it’s also important to realize that high levels of leverage can also maximize your loss. For that reason alone it is important to practice and learn sound money management practices when trading futures. Contrary to popular belief, trading futures is not like going to the casino. There are very specific methodologies that must be learned and employed in order to be successful trading futures. To be sure, it is my belief that many beginning and poorly trained futures traders habitually over trade their accounts and take unnecessary risks in their trading activities. This approach is a sure way to deplete your futures trading account.
While some stocks can be fairly active, there activity pales in comparison to the financial index e-mini futures contracts. This healthy activity in the financial index e-mini contracts makes them a popular and profitable equity instrument to trade. And traders have flocked to the e-mini contract in droves. To be sure, the ES e-mini contract is the fastest growing financial instrument in the short history of futures contract trading. Currently the average volume on the ES contract has consistently exceeded 1.4 million contracts per day. That is to say, there are no liquidity problems in the e-mini marketplace.
In my trading activities, I trade the financial indexes in the futures market. I do this because all of my prior experience in trading has been centered in the financial arena. There are scads of other e mini contracts to trade, but I have found the financial indexes fit well in my trading plan. Further, I do not employ any fundamental analysis when trading the e-mini contracts. I am a scalper, and find scalping among the most effective methodologies for day trading the e-mini contract.
On the other hand, day trading stocks is a different proposition. While some technical analysis can be employed to trade stocks, there is a healthy amount of fundamental analysis that goes hand-in-hand with trading stocks. For intraday trading, fundamental analysis can be a difficult road to hoe. Many stock day traders may have to wait several days before their analysis results in their fundamental expectations.
As a scalper, I have no trades to hold overnight, and every night at bedtime all of my money is in cash. I can be an impatient person, and detest trying to de-cipher, or predict, which way the market may move. As a scalper I spend no time predicting market moves; I react to what the market is offering and exploit breakouts and breakdowns as they occur on the chart. I find that simply trading the chart in front of me greatly reduces my market risk as my investment horizon is usually between 10 and 15 minutes. I would contrast that to the stock day trader who may wait days before his plans come to fruition.
Of course, when trading futures contracts we run very tight stops to minimize downside risk and try to let our winning trades run. This is often easier said than done, but with practice you can become quite proficient in this technique. In short, scalping allows me to minimize downside risk and take advantage of significant market moves as they present themselves. I spend no time waiting for the market to move in my desired direction, I spend my time discerning potential movement in the market as the chart formation indicates. No, I am not much on predicting the market; I spend my time reacting to the market and hence reduce my potential risk exposure to a very narrow time band.
Especially for beginning traders, I highly recommend learning the scalping method as a way to profit in the market. It does take some time and practice, but the learning curve is not a prohibitably difficult one and I have had many traders find success in as short as 2 to 3 months. It is my opinion that scalping futures contracts is a superior method to trade. Most traders tend to graduate from scalping and move into swing trading or longer-term trading techniques. As for me, I have spent the last 25 years scalping and have no desire to graduate to swing trading. I suppose I am stuck with the simple elegance and efficiency of trading e-mini contracts. Additionally, I covet the peace of mind I receive by not holding trades overnight or committing myself to a certain direction of the market in order to profit.