Money Talk Daily

Archive for the ‘Trading the E-Mini Futures’ Category

Considered very bullish, gold has now closed above its 50-day moving average. Rest assured that the hedge fund community has not missed this.

The likelihood of a re-testing of the highs has just increased. Rumors of a possible QE3 in the not too distant future can fuel the rise as well. In any event, if you’re bullish on gold – either physical or emini futures or both – there’s a lot to like about that chart, although you might not like the price inflation that heats up with expansion of the money supply. But that’s one reason we’re precious metals investors, right?

(Click on chart below to enlarge.)

Sticking to my program of keeping the technical analysis stuff simple (does it really help to light up every technical indicator available?), here’s a chart of gold price action as of end-of-day today. Could we be getting a double-bottom bullish pattern here?

Well, it will be interesting to see what happens around the $1685.00 area!

(Click on chart for larger view.)

Well, what do we know?

1. Gold and Silver are not yet ready to break out to new territory.
2. Those who jumped the gun and went long gold e-minis as gold was trying to break above $1680 are unhappy.
3. Patience and properly placed stop orders are good.
4. We cannot expect every trade to be a success.

Nothing like keeping it simple sometimes, huh?

Interestingly, gold came close to touching the 150 day MA today – just about where it bounced a few days ago. Does that mean that point will hold this time? Well, that’s what we don’t know. So, unless gold craters tomorrow, it looks like we’re still in the trading range…

(Click on chart to enlarge.)

All this waiting can drive one crazy. But here’s another lesson: never try to “force” a trade. If your set-up isn’t there, it isn’t there. Best to sit tight and wait for the market to talk to you.

Still doesn’t make it any less frustrating when the market is stuck in a trading range. Of course, there are options strategies that work well in a range-bound market. But that’s for a different blog!

Click on chart for larger view.

One crucial element of my trading strategy focuses on the sizes of the positions that I take. It is abundantly clear that getting this right plays a major role in investment success. In an industry in which buying at the right price holds overwhelming emphasis, this emphasis on position size may seem strange – and to some, almost irrelevant. However it is anything but.

Enter the e-mini which makes it possible to scale in to a position – something that would not be possible for a relatively small investor such as myself if the full-sized futures contracts were all that was available.

If you have not given a great deal of thought to how large each of your positions should be relative to your entire portfolio, then I suggest you make such a study a top priority. One place you can find more information on this topic is in Van Tharp’s books which you’ll find in my Amazon store. But however you approach the issue, give your position sizing some thought. I think you’ll find the time you spend to be very worthwhile.

What more can we say? Gold just continues to bump against resistance at about $1680.00. If you weren’t convinced $1680 was resistance before, you probably are by now. The lows are getting a bit higher the past few days. Getting the feeling that something has got to give soon?

(Click on chart for larger view.)

That 61.8% Fibonacci line looks interesting. Get ready for a set-up, perhaps? Let’s see. Just to crunch some numbers…

If we close above $1680 for a couple of days, a run to $1725 doesn’t seem unreasonable. And if that falls, a move to the bottom of that congestion area of $1775 might come in to play. If a stop loss is placed at $1665, we’re looking at a potential move to $1725 that would be three times the allowed loss. I’m not suggesting that trade, but it does have one characteristic I look for – trades which give me a profit potential of at least three times my risk.

(Click on chart to enlarge.)

Sometimes the simpler the better. Clearly gold is stuck in a range – which after the shellacking it took recently isn’t a bad thing at all.

That said, I’m looking for some solid closes above 1680 (which is right at that Fib retracement line, interestingly) before I’ll be more confident the bottom is in, and thus prepared to go long using the e-mini futures.

After all, trading is not about being certain, or getting it right all the time – it’s about taking trades where the odds of success are great enough to make it worth the risk.

(Click image to enlarge.)

Memories of 2008? If your trading strategy doesn’t provide for weeks like the past few, you are looking for disaster. Buy and hope doesn’t work. Stop orders as well as buying in the correct size do. Insisting you’re right can be a very expensive business. With that out of the way, let’s see what’s to be done.

As I am bullish on precious metals long-term, the question is whether we’ve hit the bottom of this correction in gold and silver. The answer? Possibly. But the technical damage has been severe, and the market will have to prove itself. While I’d love to see the markets start to rally from a bottom here, my job as a trader is to make money, not prove I’m right. So I’m taking smaller positions and holding tight stops. For example, I recently bought gold e-minis at about 1585 and sold at 1635. In a choppy market like this, if you hang around too long, you’re likely to be feeding someone else’s account!