When day trading futures, you enter and exit all positions in the same day – never carrying a position overnight. Since the overnight moves of the market are difficult to predict, many traders avoid risk by day trading. Ironically, the public believes that day trading is the riskiest way to trade.

THIS IS A MYTH!

Some traders day trading futures, make 1 to 3 trades per day, trying to catch the major intraday moves. Others trade in-and-out very frequently, trying to scalp a small profit on each trade. (My style uses a unique blend of these two strategies.)

For those day trading futures, the Emini Stock Index Futures have become the most popular day trading vehicle because of their liquidity, leverage, and the ease of trading them online. You can go short or long with equal ease unlike stocks where its easier to go long than short due to the up tick rule.

The time relationship of the eminis (and the big contracts) to the cash indices is important to understand. Lets start from square one.

The S&P 500 stock index (the cash index, symbol SPX) is central to day trading futures. It has an Exchange Traded Fund (the Spyders, symbol SPY) that trades like a stock, but without the up tick rule. The price of the S&P 500 cash index moves up and down with the 500 stocks that make up the index. The SPYders follow the S&P 500 cash index very closely. You can trade Exchange Traded Funds such as the SPY (and QQQQ for the Nasdaq 100) online from home. But for day traders, they are not as favorable as day trading futures.

The concept of futures is a little confusing, but it boils down to this: the financial industry has turned the S&P 500 cash index into a contract that trades like a stock. The contract (or futures contract) has a price that goes up and down from one moment to the next. It has a chart that looks just like stock chart, and you can make money with it by buying low and selling high, or vice versa. Thats a complicated as it needs to be for now.

The big contracts or SP Maxis were invented first and theyre still around. With the big contracts, a lot of money changes hands. When the price of the SP Maxis moves one point, $250 per contract moves with it. The SP Maxi contracts trade in a literal pit where the traders, called locals, shout at each other, buying and selling for everyone who wants a piece of the action.

The locals are not public servants, of course, they make money for their own accounts. They have the advantage of being able to read each others body language and the tone of the other traders voices. They see what the strongest traders in the pit are doing. They have several other advantages too, their costs per trade are tiny compared to the publics commissions.

The locals arent born as professional traders though, they learn to trade like everyone else, except they have a huge advantage in learning as well because they learn to scalp first! Their instant access and low commissions make this possible compared to others, but those day trading futures online can take advantage of scalping trades as well.

Scalping is basically limiting your losses to only one or two ticks while taking any profit you get as you get it. Its easier than going for several points per trade, Ive been using this strategy day trading futures with much success.

Locals also use the spread (the difference between the bid and ask price), to grab quick profits from orders that come in on either side of the market. This makes scalping easier for them.

In the past, all these advantages made it impossible for a retail day trader to be a successful scalper. It was insane to try. And to this day many traders have the idea that scalping is too difficult for the public because you have to compete against traders with an unfair advantage.

But all that has changed now. If you follow some simple, yet important guidelines then you too can be successful scalping and day trading futures online.

They took the concept of the Maxi futures contracts and came up with smaller contracts (the eminis) that move $50.00 per SP point instead of $250.00. This allows all traders, big and small, to trade the stock index futures.

But even more radically, they set it up so that the smaller contracts (the eminis) are traded only through computers. This was revolutionary, they bypassed the pit, taking away the advantage of the locals, and leveling the playing field in a way that has never been done before. And to level the field even more, retail commission costs fell like a rock. Today, any trader day trading futures with a small account can pay $4.80 per round turn (entering and exiting a trade).

This means that scalping is open to the day trading public for the first time in history. But most people who are day trading futures dont even realize where the new advantage really is.

Scalping is one of the keys to making a living day trading futures as I do, because I follow a simple rule: “Every trade starts out as a scalp until proven otherwise” .

The SP emini futures became more and more popular and more liquid, breaking a lot of records along the way.

The SP Maxis futures and the SP emini futures are both derived from the S&P 500 index (symbol SPX), which, as I said, has an ETF that trades like a stock (symbol SPY).

So the question is – which of these is the leader and which are followers?

Today the emini futures track the Maxi contracts almost tick for tick, with the eminis beginning to lead the Maxis at times, and also overshooting the Maxis at emotional extremes, such as the at the top of an intraday rally.

Both the SP eminis and the SP Maxis (the futures) lead the S&P 500 cash index by a variable amount of time, often in the range of a fraction of a second. Some people call this the tail wagging the dog, because the futures are derivatives of the stock indices, but call it what you want, the futures are leading the way.

The fact that the futures lead the markets makes their chart patterns more pure and reliable for support and resistance trading. This makes a huge difference to me.

I use the stock index futures (the eminis and Maxis) for calculating daily support and resistance areas, which are the basis of my own trading style a style of trading that has paid my bills and built my financial security for about 20 years now.

Author: Mike Reed
Article Source: EzineArticles.com
Provided by: Canada duty

If you put on a trade and your heart starts pounding, you are *not* ready to trade yet…Some people who arent ready to trade have other problems as well:

1. Pulling the trigger to get in

2. Staying with one trading strategy long enough to judge it

3. Letting good trades go bad

Day trading psychology plays a role in these issues, and books have been written to help traders deal with these problems, but most of them do not offer a practical solution.

In order to be successful at day trading support and resistance, you must have confidence in your trading strategy. Most traders with less than 2 or 3 years of experience, and for those who are just starting to learn day tradingwell, they have nothing to be confident about.

If your trading strategy isnt making you money consistently, in real time, you cant have confidence in it. But, how can you tell if your method is any good when you dont yet have the nerve and discipline to trade it?

Day trading psychology involves building confidence, and consistent, profitable results will lead to confidence. Being a 23 year veteran trader, my day trading advice for you would be to trade your strategy in simulation mode so that you can judge it rationally.

The inexperienced trader (and even some traders with years of experience) has a difficult time thinking rationally when they are afraid of losing money, so take that fear out of the equation by utilizing simulation trading as a tool.

Some professional traders will tell you that simulation trading is useless or even, the worst thing you can do. But it depends on why and how you utilize simulated trading. If you choose a simulation strategy that has a defined number of setups, a fairly specific strategy for limiting losses, and you stick to that strategy like glue, never deviating from it then simulated trading is a logical way of testing your method in real time and it will help you greatly.

Day trading psychology also involves self control. Cultivating good habits such as self control, and developing confidence while using a simulation method will help you when youre ready to trade for profit.
Having confidence in a method you have traded in simulation mode is the most rational starting point for a new trader, or any struggling trader.

So begin the successful part of your trading career with a strategy that you personally have learned to trust through real-time trading (preferably simulated trading).

Not all trading strategies are alike, and this is important to understand.

1. Any strategy that loses more than 60 % of the time (such as a trend-following system) will take enormous courage to trade, no matter what you do. These strategies demand a certain type of person (rich, with ice water in their veins).

2. Thousands of strategies force you to place a fixed stop and wait to see if it gets hit. These are difficult to trade with confidence even IF you can find one that wins more than 65 – 70% of the time and makes money in the process. Thats a big IF. You can spend a career and thousands of dollars searching for success with this kind of strategy, most unfortunately end in failure.

3. My method for support and resistance trading is rarely talked about, but aside from making money for me on a consistent basis for more than 20 years, it just happens to have a rational approach to day trading psychology built in.
Heres what Im talking aboutThe fear of trading is associated with the lack of control.

With most strategies you can control only a few aspects:

1. You can learn to control your entries through discipline and strict setups.

2.You can limit the size of each loss somewhat by using fixed hard stops.

3. You can control your overall chances of success by finding a strategy that works for you in simulated mode BEFORE you trade it with money.

4. You can control the days and times of day you trade.

5. You can control the number of contracts you trade, placing more money at risk on your highest-probability setups, and less on your lower-probability setups.

BUT

Most traders day trading dont know how to control the overall size of their losses. Learning how to do this is the most rational way of dealing with fear, greed, and other problems of day trading psychology, and its the main key to my own success as a trader.

Remember this simple rule that will build your trading confidence like nothing else:

** Exit any trade that doesnt go your way immediately. **

Forget about the commission, forget about how many hours you waited for the setup, forget everything except this rule. I know its radical, but just do it.
Then YOU will be in control of the one factor that most traders dont believe can be controlled the downside outcome of the current trade youre in.

The first rule is used in combination with the second rule

** Every trade starts out as a scalp until proven otherwise. **

This means that if you get 2 or 3 ticks gain and the market pauses and moves a tick in the wrong direction, you get out immediately with 1 or 2 ticks gain. No questions asked.

This simple rule gives you control over your gain/loss ratio, another thing that most traders believe is beyond control.

I trade around support and resistance levels because they are built in to every liquid market. They arise primarily from the day trading psychology of people who are trapped in a bad trade and want to get out at break-even as soon as possible. This feeling does not change from year to year or from one generation to the next, so day trading support and resistance can never become a strategy of the past.

Author: Mike Reed
Article Source: EzineArticles.com