subject: E-mini Trading In Troubling Economic Conditions (or Dancing With The Devil) [print this page] I have no illusions that I am the best e-mini trader on the planet. I might not even be the best e-mini trader in my town. But I have been trading for a living for my entire adult life (I am 55 years old), mostly at the institutional level. I have seen countless charts, and experienced a wide variety of market conditions. Sometimes, that's not enough.
Let me state my premise clearly: every now and then I am no match for the market; especially since I've retired and now trade retail sized accounts. I hate to make that admission because I believe that I have seen enough of the market in my lifetime to handle just about any situation.
Unfortunately, I can't trade in every market condition. Specifically, trading retail sized futures accounts in some market conditions creates risk /reward scenarios that make it very difficult to consistently profit. In the past month, there have been several days that had sneaky volatility that caused me a considerable amount of consternation.
I am a devotee of using a trading journal where I log each trade and some pertinent information about that trade. I also take a snapshot of the trading chart I used that is embedded in the journal spreadsheet along with my trading data. Often times, I will review the trading journal on the difficult days and find myself amazed at how simple the chart appears to trade. Then I read my notes from that day and am reminded of the frustration I felt while trading; sometimes I can relive the tension I felt that day as I read my notes.
And here comes the tricky part; I am fond of the trading volatile markets as they provide me with ample trading opportunities. But price volatility is a dodgy commodity; sometimes the market volatility can reach a point where the retail trader cannot set his or her stops wide enough to account for price volatility caused by random noise and unpredictable market moves. I have a love/hate relationship with volatility when trading e-minis in a volatile market conditions.
Why?
I don't use and unbelievably sophisticated methodology for determining where I set my profit targets and stop loss points. I generally use some variation of the Average True Range and then apply a multiplier to that number to set my stops. Of course, there are days when you can use other variables, like support and resistance, and to set profit targets and stop losses.
Every now and then the Average True Range reaches a point where my targets reach a point where they present an unacceptable risk. Currently, the Congress is dabbling with economic issues and the partisan parties are unwilling to compromise. The country risks experiencing some unpleasant economic times, maybe a recession. There can be a wide variety of economic conditions that cause the market to be unpredictable and volatile. The Congress certainly doesn't have the only license to make trading difficult.
I can be a stubborn man, especially when the Average True Range gradually increases to unacceptable trading levels. We have had several of those days in recent times and knowing my trading limitations, or ignoring trading limitations can adversely affect my e-mini trading account balance.
It's an ego driven problem with very unpleasant consequences and I can be slow to react; until I get spiked out of my first trade. Granted, there can be times in a slow market where an unexpected spike can you take me out of the trade. It is difficult to experience this phenomenon when you think you have a wonderful e-mini trade set up and watch as the market careens in the opposite direction. It can also be a warning; check your indicators and the price action to make sure you are not swimming in shark infested waters.
Failing to notice and react to highly volatile markets is a mistake that I, along with many other e-mini traders, often fail to note. By the second spike, the market has my attention. Quite simply, trading retail sized account in a market where competing interests battle for market control creates a trading paradigm that I cannot conquer; and failing to react appropriately to this type of market condition can be expensive. When the market becomes so volatile that the retracements gobble up your stop losses I am may be in a situation where I am trading on hope and you have graduated from trading to gambling.
The solution for this problem is easy in retrospect, but difficult in the heat of the battle. You need to stop trading in these conditions. Yes, turn the computer off and go golfing or any other leisure activity you enjoy. My ego sometimes gets in the way of my judgment in these situations, and I have to part with some hard-earned cash to get the message: highly volatile markets are difficult to trade with retail sized capitalization.
What?
An experienced trader should know his or her limitations and recognize when the market presents unacceptable risks. You may be outgunned, outmanned, and destined to fight a battle that is likely to produce negative outcomes. Whatever the cause, when the market is fluctuating wildly you have no business joining the fray. Know your limitations, and when the market presents unacceptable risk, act accordingly. Turn off the computer
