By David Adams
This is a very difficult question to answer properly, because the response is dependent upon an e-mini traders experience and goals. Obviously, a new trader should trade a single contract until he or she develops the competence and confidence to execute trades in a consistently profitable manner. I find, on the other hand, many experienced traders tend to over trade their futures trading account and find themselves, at times, at wits end.
I am an e-mini trader, and it is my career; so I take trading seriously. My game plan is to take 5 to 7 e-mini set-ups during the daily trading session. I feel I need this many set-ups to earn the kind of income I desire. That being said, there are days when 5 to 7 opportunities do not arise and I am forced to settle for fewer opportunities. As you might’ve guessed, there are also days when more setups occur and I take a few more setups than seven. Still, the average falls in the 5 – 7 range on a fairly consistent basis. I am comfortable with this number because it provides me ample opportunity to earn a comfortable income.
No trader should risk more than 2 – 3% of his or her e-mini futures account balance on a single set up. In fact, less is better. Generally speaking, I trade more like 1.5% of my account balance, which is usually 5 to 10 YM contracts. It is not uncommon for me to observe traders, especially newer ones, trade five or 10 YM contracts on a $7500 account. This is a recipe for disaster, as trading at this level falls into the range of over trading. Of course, the amount you risk is in a direct relationship with the stop/loss levels a trader chooses. Since the YM can range quite a bit I tend to trade wider stops than most people, though I have mental stops in mind that are nowhere near the stop/loss I set on my DOM. I consider my stop/loss to be an emergency stop/loss, and tend to trade my mental stop losses with discipline and accuracy.
I generally start with a smaller number of e-mini contracts and tried to gauge the mood of the market; if it is trending consistently I am more comfortable with a larger contract number than trading a choppy market. In a previous article, I mentioned I enjoyed channel trading and have some success with channel trading technique under certain circumstances, and will trade slightly higher contract numbers if they channel is consistently moving off from the high point of the channel to the low point of the channel.
I suppose the most important aspect of this article is relatively simple; most people tend to over trade and trade too many contracts. It is far easier to trade a lesser number of contracts in a more expeditious fashion, as opposed to taking low probability trades and hoping for the best. I currently have one student who averages 26 trades per day; this boggles my mind, as I don’t generally see 26 potential setups, good or bad, during an average trading session. He would be far better served by limiting his trading numbers and being more selective in the setups he chooses to initiate trades.
In summary, I have stated that many traders tend to over trade their accounts by trading too often and with too many contracts. I have given some parameters for wise money management; never risk more than 2 – 3% of your futures account balance on a given trade, even less is better. Finally, for most people I believe that 5 to 7 trades is an adequate number of trades on a given day. There may be days when you do not have enough high probability setups to make 5 to 7 e-mini trades, and there may be days when you have the opportunity to trade several more times than 5 – 7 times per day. The important thing is to have a plan for trading and money management and stick with it. If you’re trading for a living you need to make enough trades to give yourself a chance to earn a living. On the other hand, trading too much, or over trading, will limit your ability to earn a good living; but your broker will certainly love you as you pad his account with your over trading.
About the Author
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