Emini Trading Strategies
Ideas for trading the emini markets
Types of Trading Strategies
Emini trading strategies vary widely but they all are based on using some sort of information to your advantage to gain a profitable edge. That information could be entirely based on previous price behaviors or could be non-price data such as sentiment measures. An excellent link aggregation blog called Abnormal Returns can keep you up to date on market events and provide you with ideas for creating and testing emini trading systems. Regardless of the underlying principles of your trading strategies, using tick data to test your ideas is the best route for getting the most accurate back testing results. Tick data can provide you the fine granularity you need to effectively test trading ideas, especially short term or intraday trading strategies. We hope the emini tick data and stock charts on this site will help you test and build profitable trading systems. Below is a summary of common emini trading strategies.
There are two basic types of directional trading strategies: Mean Reversion and Trend Following. When using a emini trend following system you enter trades in the direction of the current market trend looking for a continuation of the trend. With a mean reversion strategy you are trading against the current trend looking for a pull back to some price level. You can use indicators such as moving averages, chart patterns, support/resistance or just tick by tick price, but whatever the case may be your system eventually boils down to trend following or mean reversion. Mean reversion can work at certain times and so can trend following but the key is to know when to use each. On intraday time frames we have found that mean reversion systems tend to work best. One the other hand, when trading longer time frames than a day, often trend following work best. Whatever emini trading system you use to trade you should understand the underlying principal of that strategy. You will be better able to determine the markets conditions that are suitable for trading that idea most effectively. In fact you could create a emini trading system that builds on the best of both worlds and switches between a mean reversion philosophy and trend following philosophy based on analyzing current market conditions.
Arbitrage strategies are used on similar financial instruments that have prices which are currently mismatched. For example, normally 500 shares of SPY are equivalent to one emini S&P 500 contract. If the prices between the two are out of alignment, say the SPY is slightly under priced and the Emini S&P 500 is slighlty overpriced, you could sell one contract of the Emini and at the same time purchase 500 shares of SPY. Eventually prices between the two should converge back to fair value and you can capture a profit on the mispricing. Market making firms use arbitrage to sell at the ask and buy at the bid to capture the spread for a profit over and over.
Time and Calendar Trading
These type of trading strategies are based on calendar and time anomalies. For example, if you analyze the data for S&P 500 returns you will see that on average, the months of May through October have poor returns. The vast majority of the gains in the S&P 500 index have occurred during the months of November through April. There are other well documented calendar based anomalies as well. For example, the market tends to go up more at the first few days of every month, the last few days of every month, and the middle days of every month. This may be attributed to 401K stock purchases by employees of companies getting their paychecks. Time based and calendar strategies could also be considered to be a trend following strategy since they are based on historical price patterns.
Event Driven Trading
Nobody knows when good news or bad news is going to be announced, unless you have insider information. However, if you are the first one to know that something bad (or good) has happened which is going to impact the market, you can trade and make a profit off that information. This is what event and news based strategies are based on. The key to this type of strategy is that you have to receive and process news/event data faster than nearly all other market participants. If you are too late the price move has most likely happened and you will have missed your opportunity.