Day Trading: Should You Trade the YM or the ES Contract
Most day traders are concerned about liquidity in contracts they trade. It is important to be able to enter and exit a trade at the exact point of your choosing, and thinly traded contracts and thinly traded markets can be treacherous in this respect. It's reassuring to see the heavy volume always present during a normal trading session on the ES contract, and it gives traders confidence to know that their entries and exits will be promptly filled.
On the other hand, the YM contract doesn't seem nearly as heavily traded as the ES and can appear to be thin at some price points. I trade both contracts, and prefer to trade the YM. Further, I am often asked which contract a novice trader should begin with and my answer is always the same, the YM.
Why the YM?
I usually have fairly scientific reasons in my trading technique, but I have to admit my preference for the YM is not objective nor is it scientific. There is no shortage of anecdotal stories that claim the ES contract is heavily influenced by black box trading. While that seems a plausible theory, I have found little or no evidence to support the theory. There are traders that also claim the ES contract is manipulated by some of the larger brokerage houses, but I have found little or no evidence to support this theory either. I can say that the ES contract periodically makes some inexplicable moves which I don't always understand, but that is hardly grounds for developing any sort of conspiracy theory as it relates to trading.
I have had numerous novice traders solicit me for advice and the first thing I generally ask them is what contract they are trading. If it is the ES contract, I promptly recommend they switch to the YM contract and the results are nearly always the same. They began to trade better, and they began to profit. Many would claim this as evidence of the diabolical nature of the ES contract, but in my mind I believe the YM is simply an easier contract to trade.
There are several reasons for this belief, and I think the most important one is that less experienced traders tend to congregate on the YM contract. Conversely, I think the more experienced traders tend to gravitate towards the ES contract. The obvious result of this gravitation is less experienced traders trading the YM contract. For that reason alone, the YM would be an obvious choice for traders new to the trading business.
Further, and this is just my personal opinion, the YM contract tends to react in lockstep to the cash market. Unlike the ES contract, which can deviate at times from the cash market, the YM market does not often display this behavior. Is it because newer traders are trading the YM? I don't know, perhaps.
The one thing I can say for sure is that newer traders tend to perform better on the YM contract as opposed to the ES contract. I realize my explanations above probably raise more questions than they answer. Though my observations would confirm that there is some reason the YM is not as difficult to trade as the ES. I wish I could point out the precise reason this phenomena of occurs, but I cannot. But I do like the results novice traders have on the YM, and I suppose that should be good enough.
Questions and Answers
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