E-Mini Trading: Should You Trade Inside the Channel or Outside the Channel?
On any given day, a chart of any e-mini contract will display a number of price action formations. According to statistics (and statisticians vary on their assessment of the frequency of trending patterns and consolidating patterns), the market will spend about 30% to 40% of the time in a trending pattern and about 60% to 70% in a consolidating pattern. The general line of thinking is to avoid trading the consolidating patterns and focus on the trending patterns, and I certainly agree with this assessment.
Trading with the trend has long been a maxim in the e-mini trading vernacular, with good reason. Quite simply, if the market is moving upward it behooves a trader to trade in the direction the market is moving. Of course, the same holds true if the market is moving to the downside. I have taken some rather unfortunate e-mini trading entries with the trend and have been saved by virtue of trading with the trend. In short, these entries were poorly timed but the trend saved the trade from a disastrous result. Such is the nature of the trend.
After a trend reaches its apex it usually retraces a bit and then retests the previous high. It is not unusual for the final stages of a trend to begin a sideways direction and form a consolidation pattern, or channel. These channels can be very difficult to trade and many a small trader as deposited sizable portions of their trading account trying to trade in the channel. The general rule of thumb is to avoid trading and inside the channel and look for potential breakouts or breakdowns.
But there is a problem here, the percentage of successful breakouts versus unsuccessful breakouts is fairly high when trading out of the channel. Why? When the market is in a channel formation the buyer and seller counts are fairly even, or the market can be described as being in equilibrium. Logically, the market is likely to pull a certain portion of breakouts or breakdowns back into the channel or equilibrium. This can be fairly frustrating.
On the other hand, I love to trade certain kinds of channel formations;
• If the channel is at least three ES points wide, there exist some interesting trading possibilities. Though I would caution that this type of trading can be tricky and you need not walk away from your computer for any period of time.
• It is important to shorten their profit targets to six ticks and be happy with that smaller profit objective. Inside the channel, long protracted moves are rare.
• Only take trades when the price action has hit the resistance line or support line of the channel, and you must take a trade in the opposite direction of the price action moving towards the support or resistance line. To say the least, this is a leap of faith.
• You must be aware that at any point the market may, in fact, breakout or breakdown. To be sure, you can count on the market breaking out or breaking down at some point during your channel trading. A quick hand on the flatten button will avert disaster.
• This is high-risk trading and probably best avoided by brand new traders.
• In I often trade this way between 11 AM CST and 12:30 PM CST when the market is not moving very fast and dominated by smaller traders.
Not all the trading public will agree with this trading methodology, but I can attest to the fact that it can be very effective if the channel is wide enough and the price action is bouncing between support and resistance. It's important to reduce your profit targets as you can generally only capture six ticks in each move. It's worth considering, and you might even give it a shot sometimes. Under the right conditions, it can be an effective trading method.
In summary, we have discussed a method for trading inside the channel and listed some criterion that will facilitate channel trading. The channel ought to be at least three ES points wide and it's important only take trades at the extremes, or at support and resistance. These traits should be in the opposite direction of the price action. Good luck with channel trading and trade smart.
Questions and Answers
Why is price action trading becoming an increasingly popular day trading strategy? Placing trades based on a market's price action instead of an indicator is a more open method of trading. Price action traders fully understand how to identify profitable setups and engage the market long before indicator-based traders can. Price action trading is a skill any trader can learn.
With the price action in the e-mini market ricocheting about in unpredictable patterns, it seems that scalp trading is more difficult than ever before. I've listened to countless traders complain that the e-mini price action is too volatile to trade.
Although often overlooked, the venerable Darvis box is also one of the neatest and most efficient indicators in my trading.
The problem of most e-mini traders is avoiding low probability setups, which are generally unprofitable. Considering the astounding number of new traders who fall victim to low probability e-mini trading, I found it odd that so little has been written on this particular topic.
Trading in a channel means many things in e-mini trading because trading channels come in all sorts of shapes, directionality, and length. There are also some semantic issues when discussing channels or consolidation patterns. For example, what I consider a retracement is often called a flag, in technical jargon.
The growing Indian market is attracting investors on the ground of the promising and assured return. The online trading is very popular these days and most of the people prefer it for quick money.
Learn the fundamentals of committing cash in Stocks, Ties, Common resources, Merchandise, Actual estate We create Getting Inventory Industry straightforward for you with a comprehensive guide to committing. Any effective stock market buyer must be acquainted with the fundamentals of stock market committing.
Online share trading is one of the most popular financial markets in the world today; however, any people are hesitant in starting due to not knowing a lot about it. This article will help explain what online share trading is all about, how you can get involved for a low initial investment and what to consider before, during and after trading.
The stock market is mostly used to create money. . I am sharing my investment strategy as a retail investor. Most financial experts recommend investors to initially contact a financial advisor. Able to provide advice, it can ensure that the money an investor get a good return or not.
This article has discussed about the importance of Stop orders. Stop orders act like the life jackets
It is not unusual to hear individuals ask about trading the "high probability" gap trades. It seems that there is a perception (by some traders) that e-mini gap trading falls into the sure-fire trade class of trades. Note: I have yet to locate a sure-fire trade in several decades of trading.
I've been writing some about trend lines lately and noted my observation, in several of the articles, of the declining use of this valuable charting tool. I don't have any illusions that a couple of articles by a relatively unknown author will have any effect on the use of these lines; but if just a couple of traders see the value of trending lines and e-mini trading, then I suppose I have done my job.
I like trading indicators that help me understand e-mini trading in real time. I can think of no better real time trading experience than watching price action move toward a known area of support/resistance (SAR) and evaluating what the possible outcomes may be when price collides with support lines or resistance lines.
Given a choice of just one e-mini trading indicator/chart pattern I would select, hands down, support and resistance. In my little world of trading, support and resistance (SAR) reign supreme.
Trend breakouts and breakout volume share two important factors (among a list of other important variables) in shaping the likelihood of a successful trend breakout or breakdown. For obvious reasons, volume in a specific direction is a key ingredient in a successful trade.
Discuss this Article
