E-mini ES Trading Strategy Q+A

Your trading questions answered…

This summer has been crazy! I got married last month so I’ve been a little behind with emails and blogging. I thought I’d get back into the groove by answering some of your questions.

Here are some common (and uncommon) questions I get from traders regarding my trading setups, strategy, and trade execution. If anything is unclear or you’d like more clarification just leave a comment below the post and I can go into greater detail.

Q: Do we have to trade with the trend or we can sometimes take counter-trend trades?

A: Always know what the market is doing on the daily time frame. If we’re in a strong uptrend on the daily, then intraday I’m not going to be aggressively shorting. If however, the daily chart has reached a target then looking for counter trend trades in anticipation of a pullback poses a great opportunity.

  1. Trade w/ the larger trend (i.e. If the daily is trending up, 15m is trending up, then trade the 512t up).
  2. Taking the first setup in a new trend poses moderate risk, but high reward.
  3. Use the NYSE tick to pinpoint counter trend trades on small timeframes. When a the high price of the day aligns with the high NYSE tick for the day it’s okay to go short, when the low price of the day aligns with the low NYSE tick for the day it’s okay to go long.
Q: How do you use the market internals (breadth, advance/decline) to place trades?

A: I use the market internals to help interpret market sentiment. The market breadth and advanced/decline line, along with things like the VIX (volatility index) help me gauge what is going on “under the hood” as Peter Reznicek likes to say. In looking at these throughout the day, I can determine for example, if the market is likely to remain in a sideways range bound state and thus lack follow through momentum.

More on market internals can be found in this post An Introduction to Market Internals

Q: How do you know when to use the retracement method versus the breakout method?

A: The answer to this question is determined by what the market state is. Both methods work well in trending or range bound markets, the key is to identify where we are at in the trend or the range.

Getting into the trend near the start allows for the most profit to be had, the same can be said in a range bound market, you want to get into the move at the bottom of the range, ride it to the top, exit, and then get in at the top and ride it back down to the bottom of the range (I stay away from trading the middle of range bound markets).

When the market is trending nicely in a stair step fashion (and it is easily identified visually) then I trade the retracement method. The reason being, I want to get into the trend after a pullback (or pause).

When the market is in a range bound market you can use the breakout method to get into a trade at the top or bottom of a range when the momentum shifts.

The other use for the breakout method is when the market is exceptionally strong and doesn’t make a full retracement. In this case, the breakout method comes in handy, getting you into the trend sooner than the retracement method would.

Both strategies are outlined in detail in my guide Trading Rules for the ES & 6E Futures

Q: How do you manage trades when there is a news announcement?

A: I won’t place a new trade within 5-mins of a news announcement. If I’m already in a trade and haven’t taken any profit (or the trade hasn’t gone anywhere yet) I will either close half, or close the entire thing and re-enter after the announcement (this mainly goes for big news announcements like job reports etc.)

The other announcement that can make the markets go wacky is the Fed Meeting Announcement on Wednesday afternoons every few months. I typically close out my intraday positions a few hours before the announcement (or don’t even trade on these days). Once the news is announced the markets can go bonkers and it usually takes till the close for things to settle down.

Q: What marks a trend change or failure?

A: A break of the 61.8% line equals a break in trend in my book. There are a few other factors I use to determine if the trend change has substance. I talk about them in this video: How to Identify the Market Trend.

Q: How do you use the smaller time frames to enter into the trend?

A: Identify a 15m setup that has traded entry to target. Then draw the next 15-min setup in the trend and when it pulls back to its 50% zoom in to the 512 tick chart. Look for the trend to break on the 512t chart as it comes down into the 15m entry and bounces. Then take the first 50% retracement on this 512t time frame.

Q: Do you ever buy the daily or 15-min levels outright?

A: If it’s a big level and the previous setup in the trend was clean I’m okay with taking 15-min levels with a limit order. If it’s a big daily level that appears to be a significant, but isn’t entirely clear, waiting for a bounce and taking the first setup on the 15-min is my tactic.

In Summary

In addition to where to enter and where to exit, as a trader you need to know how you will respond in various situations. How are you going to get out of your losers? How are you going to keep your winners from turning into losers? Never stay in a losing trade because you think it will come back. Cut it, minimize the loss and move on. What is your opportunity cost of being in this position? Are there better opportunities out there?

Think of yourself as a risk manager in search of opportunity.

If you have questions leave them below, I’m happy to answer them!

  • What are you struggling with?
  • What’s one thing that’s working for you right now?
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About Tim Racette

Tim is a full-time trader in the futures and stock markets and founder of EminiMind.com. He is also a Chicago-land native, competitive mountain biker, adventurer, and ASU Sun Devil.

5 Responses to “E-mini ES Trading Strategy Q+A”

  1. Hi Tim,
    I use Market Internals to confirm my strategy. For e.g if the internals are strong and Strategy develops a short trade, I will not take it as I classify it as not a high probability setup. Sometimes this will get me into trouble as I miss few opportunities. Initially I was using NQ, YM and SP spreads and this sometimes gave conflicting signals and confused me, so I made it simple by using just SP spreads and TICKS.
    Here is what I rely on for confirming a strategy
    1) Market Internals ( SP spreads and TICKS )
    2) Convergence / Divergence in ES , NQ and YM
    3) Setup based on strategy.
    I classify the setups probability based on 1 and 2.

  2. Hi Tim,
    Are these rules in general working for larger time frame? I have a full time work. I Am looking for a good system to do swing trading stocks.
    I like your trading rules for ES. But I don’t know how well they will perform in larger time frame for trading stocks.
    By the way, I watched some of your video on YouTube. It’s very informative and easy to understand!
    Thank you!

  3. Hi Tim,

    Do you incorporate market symmetry into your strategy – like 1:1 corrections? I have found that this also helps to define the trend, when the market does not retrace more than the previous correction swing it usually indicates the trend is intact and strong. When the 1:1 correction coincides with a 38.2, 50 or 61.8 fibo level or a prior pivot level – it is usually a good entry point with well defined small risk. This works in all time frames from daily, 30m, 15m &5 min.

    Can you please clarify what you mean by this statement you made above – “A: Identify a 15m setup that has traded entry to target.”
    Do you mean to identify an 15min set up previous swing that traded to a well defined target like prior pivot high and retraced 50%?

    Regards
    Dayo

    • Hi Dayo, yes precicely. If you can scroll back on your char (to the left) and find retracement setups that are trading from their 50 to their -23 then I look for the next setup in the trend.

      As for 1:1 correlations, what relationships are you looking at?

      Tim

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