When day trading futures, you insert and exit all stands in the same day – transport a stand overnight. given that the overnight moves of the marketplace are to predict, many traders sidestep risk by day trading. Ironically, the freely available believes that day trading is the riskiest way to trade.

THIS IS A MYTH!

Some traders day trading futures, make 1 to 3 trades per day, demanding to catch the major intraday moves. Others trade in-and-out very frequently, demanding to “scalp” a small profit on each trade. (My style uses a unique blend of these two strategies.)

For those day trading futures, the Emini Stock Index Futures have become the most popular day trading vehicle because of their liquidity, leverage, and the ease of trading them online. You can go short or long with equal ease – unlike stocks where its easier to go long than short due to the “up tick” rule.

The time relationship of the eminis (and the “big contracts”) to the cash indices is important to understand. Lets start from square one.

The S&P 500 stock index (the cash index, symbol SPX) is central to day trading futures. It has an Exchange Traded Fund (the “Spyders,” symbol SPY) that trades like a stock, but without the “up tick” rule. The price of the S&P 500 cash index moves up and down with the 500 stocks that make up the index. The SPYders follow the S&P 500 cash index very closely. You can trade Exchange Traded Funds such as the SPY (and QQQQ for the Nasdaq 100) online from home. But for day traders, they are not as favorable as day trading futures.

The concept of “futures” is a little confusing, but it boils down to this: the financial industry has turned the S&P 500 cash index into a “contract” that trades like a stock. The contract (or futures contract) has a price that goes up and down from one moment to the next. It has a chart that looks just like stock chart, and you can make money with it by buying low and selling high, or vice versa. Thats a complicated as it needs to be for now.

The “big contracts” or SP Maxis were invented first and theyre still around. With the big contracts, a lot of money changes hands. When the price of the SP Maxis moves one point, $250 per contract moves with it. The SP Maxi contracts trade in a literal “pit” where the traders, called “locals,” shout at each other, buying and selling for everyone who wants a piece of the action.

The locals are not freely available servants, of course, they make money for their own accounts. They have the advantage of being able to read each others body language and the tone of the other traders voices. They see what the strongest traders in the pit are doing. They have several other advantages too, their costs per trade are tiny compared to the freely availables commissions.

The “locals” arent born as professional traders though, they learn to trade like everyone else, except they have a huge advantage in learning as well because they learn to scalp first! Their instant access and low commissions make this possible compared to others, but those day trading futures online can take advantage of scalping trades as well.

Scalping is basically limiting your losses to only one or two ticks while taking any profit you get as you get it. Its easier than going for several points per trade, Ive been using this strategy day trading futures with much success.

Locals also use the spread (the difference between the bid and ask price), to grab quick profits from orders that come in on either side of the marketplace. This makes scalping easier for them.

In the past, all these advantages made it impossible for a “retail” day trader to be a successful scalper. It was insane to try. And to this day many traders have the idea that scalping is too for the freely available because you have to compete against traders with an unfair advantage.

But all that has changed now. If you follow some simple, yet important guidelines then you too can be successful scalping and day trading futures online.

They took the concept of the Maxi futures contracts and came up with smaller contracts (the eminis) that move $50.00 per SP point instead of $250.00. This allows all traders, big and small, to trade the stock index futures.

But even more radically, they set it up so that the smaller contracts (the eminis) are traded only through computers. This was revolutionary, they bypassed the pit, taking away the advantage of the “locals,” and leveling the playing field in a way that has been done before. And to level the field even more, retail commission costs fell like a rock. Today, any trader day trading futures with a small account can pay $4.80 per round turn (inserting and exiting a trade).

This means that scalping is open to the day trading freely available for the first time in history. But most people who are day trading futures dont even realize where the new advantage really is.

Scalping is one of the keys to making a living day trading futures as I do, because I follow a simple rule: “Every trade starts out as a scalp until proven otherwise” .

The SP emini futures became more and more popular and more liquid, breaking a lot of records along the way.

The SP Maxis futures and the SP emini futures are both derived from the S&P 500 index (symbol SPX), which, as I said, has an ETF that trades like a stock (symbol SPY).

So the question is – which of these is the leader and which are followers?

Today the emini futures track the Maxi contracts almost tick for tick, with the eminis beginning to lead the Maxis at times, and also “overshooting” the Maxis at emotional extremes, such as the at the top of an intraday rally.

Both the SP eminis and the SP Maxis (the futures) lead the S&P 500 cash index by a variable amount of time, often in the range of a fraction of a second. Some people call this “the tail wagging the dog,” because the futures are derivatives of the stock indices, but call it what you want, the futures are leading the way.

The fact that the futures lead the marketplaces makes their chart patterns more “pure” and reliable for support and resistance trading. This makes a huge difference to me.

I use the stock index futures (the eminis and Maxis) for calculating daily support and resistance areas, which are the basis of my own trading style – a style of trading that has paid my bills and built my financial security for about 20 years now.