Ask a Broker
ISSUE 710 | October 2008
Q: Can you give an example of a basic day-trading model for the E-mini S&P’s?
A: Lind Plus Senior Market Strategist Dan Pavilonis answers.
Of course, there are a number of different approaches traders have used successfully, and it’s important to try and find your own unique edge. One example of a day-trade model I like for E-mini S&P 500 futures is focusing on a 3-minute bar chart, and using the Moving Average Convergence Divergence (MACD). With this approach, I would recommend trading the market three times a day, risking four points, and taking eight points.
First, understand the basics of the MACD. The MACD is a momentum indicator, which shows the relationship between two price moving averages. The two MACD lines will grow further apart, or diverge, in a strongly trending environment. In a sideways or consolidating market, they come closer together, or converge.
A chart of the E-mini S&P 500 futures on September 25, 2008, is used as an example. The blue line reflects the MACD, 12-day and 26-day exponential moving average. The red line is the signal line, calculated as the 9-day exponential moving average.
To use this approach, follow the trend. If the MACD indicator stays close to the zero line, the market is not giving a firm signal. Once there is some divergence (meaning the indicator is above the zero line or below the zero line), at this point we are looking for a strong buy or sell signal. Go long when the MACD signal crosses its signal line from below, or short when MACD crosses its signal line from above.
At the point of entry with this model, we don’t want to chase the market, but I recommend using a limit order at the point of the MACD divergence in comparison to the actual market price. We cannot violate this model and chase the market--understand we only look to risk four points. After entry, I recommend putting in a four-point stop and an eight-point limit order.
With this particular chart, the first entry would have been 1193.00, with a stop-loss order at 1189.00 and a limit order at 1202.00 (to take profit). The second buy signal comes in at 1297.00.
I feel volatility in this particular market can give you an adequate trading range. There are other technical indicators you can use to compliment the MACD in this model of course, including support and resistance. This is just one of many technical approaches you can use to trade. If you are just getting started, you may want to work with a professional who can help you develop a trading approach that fits your unique risk tolerance and account size. Please feel free to call me with any questions you may have.
Dan Pavilonis is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 888-801-9302 or via email at dpavilonis@lind-waldock.com.
Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
Futures trading involves substantial risk of loss and is not suitable for all investors.
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