I get asked often about how to trade the mini futures contracts. It seems that people, usually individuals new to trading, are looking for a “Holy Grail” when trading emini contracts.

Such a creature doesn’t exist.

There are many theories out there on the nature of market and price patterns, the most popular being Efficient Market Theory, Fundamental Theory and Technical Theory. There are loads of variants on each theory, and they are flawed in some manner. The chaotic nature of stock market pricing has prevented the truly mistake free system from ever being realized. I suppose the primary reason for this problem is the varied cycles the stock market assumes throughout the trading year. The trending market is the easiest to trade, but the market doesn’t trend on a consistent basis, though it often assumes a positive or negative bias during the trading day.

Novice traders often go through many high priced trading systems before they realize that the best system is gained through experience and knowledge. A good strategy is learn one contract and the nominal pricing behavior for that contract. I always suggest starting with the YM (Dow emini) contract for novice traders as it seems to have the least “noise” to tackle with in trading emin contracts. I have found that many traders will start with the ES contract (S and P emini) and have little success, then switch to trading the YM contract and see the light. There are a number of theories for this paradigm, and most suggest the possibility of excessive black box, or automated, trading on the ES contract. Like most things involved with trading, the evidence for the black box theory is sketchy, at best. My general opinion is to start with the YM because it is consistently easier to trade.

As of late, I have been bracket trading the YM with 25 point stops and limits with great success. I do, on ocassion, use trailing stops. I think it is a matter of personal preference. For me, I like to forego the trailing stops, as I often lose profit on a momentary pullback in the contract price.

I also suggest using a system with the CCI as a primary indicator. There are several out there and they seem to work pretty well and the best one is free. One very popular system has been around for a long time, and can be found with a simple search using the word “CCI.”

Trading emini contracts can be frustrating and less than profitable from the onset, and a month or two spent “paper trading” on a demo account will save most people a lot of money. If you get where you can put together 5 days of profitable trading on a consistent basis, you are ready to trade with a real account. Start with 1 contract because live trading creates a different emotional state that paper trading. I know that is a difficult concept and hard to digest at face value, but it’s true nonetheless.

Learn a good system and get some prolonged exposure to trading and you will be successful trading emini contracts.