Emini S&P Is Different From Almost All Other Markets
By Lawrence
Normal people has the urge to find a handle on things. They love to learn one specific method to tackle Emini day trading. Trading coaches and indicator vendors love to offer these beginners what they want – a one size fit all answer that these beginners can learn thinking that they will be able to make money in no time. Of course, these beginners ended up losing not just their money and their confidence in trading. They also lost the will to correct their deeply rooted misconceptions about trading.
To certain extend many of these trainers and indicator vendors do not know how wrong they are about Emini day trading. That’s why they do not understand why their methods do not work all the time. Even though some of these trading coaches are profitable traders themselves, they never really spent the time to understand Emini. They also struggle with trading themselves from time to time. They let their personal beliefs misguided themselves and in turn misguiding their trainees.
The Personas of Emini S&P Can Be Very Complex
What normal people fail to realize is that if Emini S&P is a person, this person has multiple personality disorder. What it means is that you should never assume you are dealing with the same Emini market one day to the next. One day Emini S&P may loves to move between two boundary points. The other day it may want to expand its weekly range coverage. Using a static method to deal with Emini S&P all the time, is like dealing with a person who has multiple personality disorder, yet you are expecting similar logical responses.
It will make you frustrated. It will drive you nuts from time to time while making you excited the other times. For some people with very unique taste, it could be fun to deal with that every day. But it is definitely not going to help a normal person to profit from day trading Emini.
Majority of the popular trading methods and technical indicators are designed to simplify the trading decision making process, which often fail to take into consideration of the personality issue with Emini. Thus as a beginner learns a trading method and adapted the techniques to trade Emini with some good results, next thing you know the beginner loses all the profits as the method crashes hard over the next few weeks. The process starts all over again as the beginner looks for the next trading method.
It is sad to watch people losing money this way. All the agony and suffering are not necessary. All the beginners have to do is to realize that they should stop looking for a single method to tackle emini day trading, all day, everyday. This realization alone can open the door to profitable trading.
Markets Are Made Up Of Not So Rational Crowds
We talk about the existence of markets all the time but we seldom talk about the make up of a market. A market is somehow implicitly assumed to be something we all understand. Well, most people I know of do not know what a market is. Let alone standardized auction markets like the Emini S&P and exchange listed stocks. People assume they know what they are talking about when the word market is mentioned.
The main thing every one needs to know is that markets are made up of people. There is no market if there is no one to trade against. But human are irrational. So collectively when people express their opinions in a particular market by buying and selling the financial instrument, we get irrational price movements.
What does this have to do with the multiple personalities of Emini S&P?
Everything.
At any particular time of the day, you cannot expect all the traders who trade Emini S&P to monitor the market at the same time. Depending on the decisions made by the crowd at the moment, together with the pending orders placed by the other traders, Emini S&P will be moved in a particular way uniquely driven by this group of participants including both humans and bots.
But other markets have many different kinds of participants too, isn’t it?
What makes Emini S&P so special?
No Other Markets Have So Many Side Bets Like S&P
Normal markets like commodity based future contracts and gold ETFs are well defined by the underlying singular instrument. There can be many derivative markets derived from the same underlying physical item. Yet, all the participants in these markets are making their decisions mostly from the same narrow set of information that they can gather about the underlying item. In other words, the decision making process and potential decision results are very limited at any single point in time. This greatly limits how these markets behave in the intraday timeframes.
In contrast, S&P 500 based derivatives like Emini S&P have many underlying components to deal with. On top of that you have overall economic conditions to consider as S&P 500 is a proxy of the overall health of the US stock market. Due to the size of combined S&P derivative markets, there are also market participants who specialize in arbitrage trading across these markets. And don’t forget the market makers of the individual component stocks and options who at times will use S&P derivatives to hedge themselves. The decision making process among so many different types of market participants, with completely different goals and objectives, are as diverse as it can be.
This makes Emini S&P exceptionally difficult to trade for many people who have pretty good experience trading markets with single underlying instrument. On the other hand, good index day traders who love the actions in Emini S&P often find many other markets too slow and lack the multiple trading opportunities like Emini S&P during the day.
The important thing to remember is to separate your trading experience of stock market indices from the ones you have in stocks, commodities or any other markets with single underlying instrument. Think of it this way – riding a bicycle is not the same as riding a motorcycle although you are still riding something with 2 wheels.
Summary
Emini S&P (and many stock market indices) is different from other markets for a good reason. Some people are naturally better at dealing with a forever changing environment just like some people like their love interest to be unpredictable. On the other hand, if you are looking for day trading opportunities to just make a decent living, and that you are not interested in dealing with surprises almost everyday, it is perfectly logical to trade other markets.
Your personal interest in conquering a specific market like Emini S&P can be a personal desire or even an obsession. It is not, however, a good reason for you to throw yourself into a more complex trading environment over the ones that you have a good understanding of. There are all kinds of markets that fit for different personalities and risk profiles. Remember trading is a means to make money, it is not a game for fun or intellectual challenge. Lose sight of the most important objective will lead you to unnecessary struggles against yourself mentally and will also waste your precious time that could have been used to make money from markets you know you can do well.
Thanks Lawrence for clarifying what you meant in the premium chatroom about side bets. Your article convincingly asserts that the equity indexes are of an order of complexity not likely to be consistently fathomed and profitably traded by those not able to detect and track the current complex of traders. Do you attempt to maintain a quantifiable, quasi-mechanical computerized trader support model of the ratios of predominant side betters in combination with overall economic metrics to predict the immediate market pesonality and the likely direction of that group, or is the complexity too abstract and subjective to improve on real-time thinking about who is in control based on historically-informed cerebral processing?
What systematic approach would you recommend for a trader to start compiling the necessary categories of traders and ways to detect their presence? Perhaps you could suggest one or two categories of traders to take note of and how to anticipate their behavior. Events like NFP week and option expiration day are more obvious, but what are the less obvious power players and how are they anticipated, detected and tracked. For example, you sometimes mention trend traders. What timeframes and % retracement predict their jumping in? Do they tend to trade on the hour or certain times of day? Today there were 1 second aggregated large trade bursts of up to 3000 contracts. Who is that? Admittedly, I’m full of more questions than can be answered as easily as asked. You may want to direct me at other key articles.
As a scalper I find the most valuable posturing is to know when a trade should be treated with more patience and broader brackets owing to the presence of the “big foot” personality-type, who stomps ants who attempt to dance with her. I’m a resilient ant but need ant roller blades to skate-dance with that amazonian when she disturbs my colony.
Thanks once again for the profound insights you share daily.
Large scale simulations gave me a good idea given certain price patterns / market breadth formations they can only be resulted from certain types of domination scenarios.
So it is not from the historical data that give me an idea, instead, it is from knowing what is possible first and the detection is now done to focus on the 2 extremes – the very large size players and the very small size ones.
The other questions will be answered with another article on the intraday rhythm of ES.
Once the gap framework articles are all completed you will have a comprehensive intraday map of what to expect for different trading days. It will be easier to figure out when to hang-on.
Trading index products is like someone with multiple personality disorder and let me add Obsessive–compulsive disorder(OCD) =) Perhaps this is why there are more opportunities to exploit, when the unexpected happens and you can exploit the inefficiencies ( like SURPRISE gap up/down, too many bears/bulls trapped on one side etc. )
That’s the beauty of a messy / complex market place like S&P.
There is always some group of players trapped on the wrong side leading to the next good move. =)