Where to start trading Emini’s? How about the micro futures?

Where to start trading Emini’s? How about the micro futures?

If you’re new to index trading, the Emini micro futures contracts from the CME are a great place to start.

00:11

Introduction to micro contracts for indices

00:11

The speaker introduces the use of tick charts for trading futures, specifically focusing on a micro contract for indices called the MES. This contract is one-tenth the size of standard contracts like the ES, YM, or NQ, making it a smaller and lower-risk option. The MES operates on the same principles as larger contracts but features lower tick activity, providing a more accessible entry point for traders. It was launched by the CME last year and is available across various contracts.

01:25

Liquidity and popularity of micro contracts

01:25

The speaker discusses the popularity and liquidity of micro contracts in currency futures trading. Unlike typical micro contracts that tend to be illiquid with uneven price action, these micro contracts show smooth price movements similar to full-sized contracts. They are recommended for beginners or those not comfortable trading larger contract sizes, offering a way to familiarize oneself with futures trading before moving on to full-sized contracts.

02:29

The focus shifts to different contract sizes, noting the YM as a larger contract and explaining that the NQ and ES represent smaller contracts valued at $5 and $25 per point respectively. The speaker highlights narrow price action across these contracts and mentions current trading conditions, emphasizing the relationship between volume and price in the market.

03:00

Volatility triggers and gap traps explained

03:00

The speaker discusses recent market volatility triggered by unusual daily volatility signals, which often indicate potential congestion or reversal. They explain how the market moved lower after opening with a gap down, highlighting the common market behavior that gaps tend to get filled. This gap-filling acts as a trap for traders who expect a continuation of the initial move, causing reversals that catch traders off guard. The phenomenon is especially prevalent after weekends when markets reopen, affecting futures, cash markets, and stocks, but less so in Forex. The segment emphasizes the importance of recognizing these traps to avoid being misled by market movements.

04:50

Volume analysis and price spread anomalies

04:50

The segment analyzes price and volume action in a technical market context. It begins with a discussion of buying under a candle with a deep weekly gap that was filled, followed by a strong close on high volume. An anomaly is identified where increased volume occurs in a narrow price spread, indicating selling pressure in a fragile market. The analysis compares this candle to others on the chart, examining volume and price spreads to determine if they are in agreement or disagreement. Wider spreads with higher volume are seen as reasonable, while narrow spreads with low volume are typical and not anomalous. The discussion emphasizes the importance of identifying price and volume agreement or divergence to understand market strength or weakness, concluding with days of indecision and waiting.

07:12

Market indecision and volume importance

07:12

The speaker discusses the influence of various factors such as the Federal Reserve actions, fundamental perspectives, and the global pandemic on market behavior. They emphasize the importance of analyzing volume to understand price action, noting similar patterns across major indices like the YM on the daily chart. Additionally, the relationships between different markets and within indices themselves are considered, highlighting that while these indices generally move in unison, recent weeks have shown divergence.

08:16

Divergence among major indices

08:16

The speaker discusses a specific market day when the Nasdaq was up while the YM and ES indices were down, highlighting market uncertainty. They explain that different indices are constructed differently, with the YM being a narrow index focused on large companies, whereas the ES includes a broader range of companies, potentially offering a more balanced fundamental view. From a technical trading perspective, when one index leads and others lag, the leading index must be very strong to pull the others up, but it often signals a potential pullback due to the opposing forces in the market. The importance of considering related markets within the same sector, such as currency pairs in forex, is emphasized to better understand market dynamics.

10:10

Significance of VIX for traders

10:10

The speaker advises traders to first check the VIX, comparing it to a petrol gauge on a car—without fuel (or awareness of volatility), you can’t proceed. The VIX is important not just for long-term investors but also for intraday traders as it provides key insights into market volatility and sentiment.

10:41

Many traders misunderstand the VIX as only relevant for long-term stock investors, but it is equally crucial for intraday trading. Monitoring the VIX helps understand volatility levels and the balance between calls and puts, serving as an essential tool for assessing market conditions.

11:12

The VIX should always be displayed when trading as it acts like a heat index reflecting market sentiment instantly. It’s a vital and freely available indicator that traders should not ignore, as it provides immediate insight into the current market mood.

11:40

If the VIX is not on your trading platform, it can be easily accessed on sites like investing.com or TradingView. Keeping the VIX visible at all times offers a real-time heads-up on market conditions, which is essential for making informed trading decisions.

12:05

The speaker demonstrates adjusting the VIX chart to various timeframes—from one-minute up to daily—to analyze current volatility levels. They note the VIX is trading around 33.3, emphasizing the importance of viewing it full-size and from a longer-term perspective to anticipate future market movements.

12:46

Current VIX levels versus market sentiment

12:46

The discussion centers on the VIX index, which remains unusually high around 33 despite a strong rally in stock indices that have recovered most losses. Normally, such a rally would see the VIX drop to much lower levels, such as those observed earlier in the year when it nearly hit single digits, indicating strong risk-on sentiment. The current elevated VIX level is seen as anomalous and suggests a disconnect between market fear measures and actual market sentiment.

This imbalance is compared to previous market episodes, like the irrational surge in the Aussie yen pairs, which were later corrected. The speaker emphasizes the importance of monitoring the VIX as it provides a clear and straightforward gauge of market risk sentiment, highlighting that the market currently lacks momentum and is oscillating without a clear directional bias.

By Anna Coulling – creator of volume price analysis