By David Adams
There are a wide variety of methods to trade e-mini contracts currently taught by trading educators. Some are good, some are not very effective. From time to time I get some very talented traders visiting my trading room and they all have one common characteristic; they understand e-mini charts and price action, and don’t rely upon oscillators, moving averages, and indicators.
This article is not a condemnation of using oscillators and indicators in the trading process, but I do want to point out that using oscillator and indicator methodologies as your primary trading tools generally leads to mediocre or unprofitable trading results. All oscillators and indicators are tools that lag the market, despite claims by some that they have developed leading indicators. Indicators and oscillators use information from the previous time periods to develop, through a specific algorithm, their output. By definition, using historical information creates lagging results.
While many schools of thought deny any level of randomness present in equity markets, the empirical evidence disproving this line of thought is overwhelming. There can be no doubt that 60% to 70% of the market movement is created by normal backing and filling operations that are the heart of equity markets. These backing and filling operations create periods of consolidation and range bound channels that are, at best, difficult to trade. During these periods of consolidation, or slightly wider periods of range bound trading, indicators and oscillators can give wildly false trading indications and, especially for new traders, present setups that are faulty and unprofitable. Of course, oscillators and indicators work well during trending markets, but I don’t need any indicators to trade a trending market, no one does; trade with the trend and you will generally profit.
Price is everything.
This statement leads me to my thesis in this article; learn to read charts and understand price action and you will be well on your way to success. The very best e-mini traders I have known were masters of support and resistance, trend lines, volume analysis, and identifying unprofitable trading channels. In my trading I use 2 indicators. I use these indicators to reinforce the ideas that I have developed about trading from the chart action, and they are never the primary source for potential e-mini trading setups. I would be remiss if I did not point out that it takes time, experience, and specific type education to master chart reading. On the other hand, these skills are really not so difficult to master with proper diligence. I highly recommend that e-mini traders learn to read charts and understand price action, as I have watched many of my students increase their profitability and trading confidence through understanding these types of skills.
In summary, we have discussed some of the inherent deficiencies that are problematic with oscillator and indicator based trading. We have identified the lagging tendencies of these indicators. I have suggested that learning price action and chart reading are the keys to success in e-mini trading. Time and experience with struggling new traders (and watching their improvement) has proven that the key to e-mini trading lies in understanding price action in the information contained on your trading chart.
About the Author
Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here
