So You Want To Trade Emini Contracts for a Living
This is a post I have been putting off for a while, as the answer to the question I posed in the title is a difficult and controversial one. It is possible to make a great living trading emini contracts online. The success numbers on such a decision are a bit daunting, though. More than 90% of all new traders bust out in less than three months. Those are not encouraging numbers, and present a pretty tough hill to climb. There are several ways to view this failure rate, and I will try to expound on some of the factors that cause this massive failure in success.
First and foremost, trading emini contracts does not necessarily make sense. By that, it is difficult, if not impossible to apply common sense to analyzing a chart. The markets are ruled, to a certain degree, by randomness and this variable makes accurate predictions based upon common sense nearly impossible. For example, in times of higher inflation or, at least, the perceived potential for higher inflation, hard assets like real estate and metals ought to rise in price. Yet the correlation between these two variable is not necessarily valid, and there are countless examples of sharp divergences in what common sense ought to hold as true.
Often times, a very negative report on employment in our country puts one in the mindset that the market ought to react negatively on the market. After all, less people working equate to less money available for the public to spend on goods and services. Nope, time after time the market chooses to ignore bad news and continue along its merry way. It can be very frustrating.
So we can rule out an investment style based on what "ought" to happen and accept that there is some degree of randomness, or chaos, that exists in the market. Though I would not forward the notion that the market is completely chaotic or completely random. No, there is something there, some information to be mined.
On the other hand you could listen to the news media or listen to your good friend Earl (or any other good friend, you pick a name) and base your investments upon hearsay and anecdotal advice. Hmmm…even at face value a rational person will stray from this investment style. The news media is rife with churned news and conjecture and your buddy Earl probably isn't the Holy Grail of investing, even though he may believe he truly is enlightened.
You might also decide to purchase an "out of the box" system of trading for thousands of dollars and the purveyor of that system will think quite highly of you. Unfortunately the success rate on these systems is suspect and the methodology is proprietary. You are not going to learn much with this approach, just trade when certain indicators say it's time. I can't recommend this approach either.
There are countless pitfalls to successful trading, and they all contribute to the 90% failure rate I mentioned at the beginning of the post.
So what do you do?
Learn to trade. Isn't that a crazy sounding idea, but the problem lies in the proliferation of hundreds of different styles of trading. Some are very successful, some are less than successful. You need to become a student of trading, and read, practice and paper trade. You need unbiased advice, you need fundamental advice that will help you accept or reject certain tenants of a given trading systems. For example, I scalp trade and never hold a trade overnight. This system suits my personality and trading philosophy.
You need to develop a trading philosophy to integrate into your trading…if you are simply going to scan charts looking for "good trades" you will quickly find yourself in the 90% group. You must have, in your own mind, a sound understanding or interpretation of the way the market actually works, then integrate that philosophy into your trading style. There is a difference between trading philosophy and trading style, though the two go hand-in-hand. Trading philosophy entails a broad view of the functioning of the markets you trade, trading style is the implementation of your broad view of the manner in which the market functions.
Never stop learning and always be open to new ideas, lifetime students become very successful traders. As always, Good luck in your trading.
Questions and Answers
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