With The Shaky Economy, Can I Still Trade the E-mini?EUR(TM)s in this Volatility?

Though the volatility has caused some problems of late, most days have been pretty good days to trade, if you have been willing to expand your stops to just about as wide as your risk tolerance can stand. As a small e-mini trader (which I define as a trader trading less than 50 contracts), price volatility takes away one of my most precious trading variables. Time. Without adequate time, you are subject to every retracement or rogue bar taking you out of your e-mini trade.

What is causing all this price volatility?

There are a number of factors that are capable of roiling the markets, but we currently have a constellation of concurrent world crisis that it is financially unprecedented. Some current problems that surface daily are:

• The European situation is, at best, precarious. A whole southern tier of Europe (Greece, Italy, Spain, Portugal and Ireland) has found themselves with debt issues that have required IMF and European Central Banking intervention. Additionally, there is growing displeasure in the Northern European States with the amount of money some of these bailouts may require.
• The US economy is, at best, precarious. The housing market has yet to display any sign of meaningful or widespread recovery and the foreclosure rate is still at remarkably high levels.
• The US has debt issues, too. I expect to see a flurry of reports in the coming months that are, in the main, negative; there will also be some bright spots in the economy that may continue to encourage investment.
• The Middle East seems to be in a state of turmoil, which has pushed gas prices temporarily high. The price, at the present, is back near $80/barrel.

What can you do as an e-mini trader?

These are times when I give my e-mini trading methodology a real workout. I keep a close eye on the Average True Range (ATR) and when it reaches unacceptable levels, I wait for calmer times. On several occasions this week the ATR moved between 30 and 50 ticks/3 minute bar. (on the YM contract)


With an ATR reading of 30, I am going to need stops in excess of 25, maybe 30. As e-mini traders, specifically e-mini scalpers, a stop loss of thirty is not in the playbook. Another useful indicator in volatile times is the NYSE tick. (symbol: $TICK) This is a real time indicator that shows the relationship between rising and declining stocks. It is not a number from the futures market, but data from the NYSE. There are a myriad of articles on how to trade the tick, several which are in my article listings. My preferred trade with the NYSE tick is a fade to the short side when the reading reaches +900, and the exact opposite when the tick reads -900. I generally only take the fades to the short side as they seem to be a bit more reliable.

As scalpers, volatility is our bread and butter…but we need our volatility in workable parameters or trade only very safe trades in which the trader has a high level of confidence. Too much volatility and we lose our time element, so trade carefully in these turbulent times and err on the conservative side.

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