Measuring E-mini Profit Potential of Day Trading E-mini S&P 500 futures

MEASURING E-MINI PROFIT POTENTIAL
Measuring E-mini day trading profit potential.
Volatility is the source of potential profit, as well as potential loss, for the E-mini day trader and measuring it is done with reference to the Daily Range Value calculated by multiplying the day's high-low range of a particular E-mini® S&P 500® futures contract by the point value for the contract. For the E-mini S&P 500 futures, the point value is $50, the contract's multiplier. The result is the theoretical maximum profit or loss for one E-mini contract possible during the day. For example, a day's trading range of 22.50 points represents a Daily Range Value of $1125, the per-contract maximum that could be earned (or lost) by buying an E-mini S&P 500 futures at one price extreme and selling at the other.

From June 2008 to December 2009, the Daily Range Value of the E-mini S&P 500 futures fluctuated between a minimum of just $125 and a maximum of $5775 with the average being $1265 per contract. The histogram (at right) is more revealing: over half of the days had a range value of over $1000 per contract with 14% of the days exceeding $2000.

No E-mini day trader can or should expect to buy at the low and sell at the high. For that reason, the Daily Range Value represents a maximum theoretical measure. In practice, though, a day trader can strive to capture some percentage of the Daily Range Value as target performance for their trading plan. If, for example, a trader could capture just half of the price movement, then based on the histogram, one out of every two trading days in the E-mini S&P 500 futures would still provide the trader with the potential to earn $500 or more.

Frequency of various Daily Range Values: June 2008 to December 2009

Show me the Money. A quick glance at the histogram above shows why the E-mini S&P 500 is so popular among day traders: there is plenty of profit potential, more so than with most other futures contracts. There are even very active days that provide the potential to earn thousands of dollars over just one trading day.

Apart from showing profit potential, the histogram is also useful in quantizing the expected frequency of "spectacular days" and the opposite, "down days" in the E-mini S&P 500 futures market. Spectacular days - when the Daily Range Value surpasses $3500 - occur with more likelihood than one might expect so any trading plan should at least provide the opportunity for the day trader to stay in the market and capture these large price swings.

The number of down days, when trading is too quiet to generate much if any opportunity, depends in part on the criteria for initiating a trade as detailed in the trading plan. For example, a day trading plan that requires a predetermined movement away from a local high or low prior to establishing a trade will require a sustained price movement to trigger a trade. Depending upon the size of the requisite movement, days having a Daily Range Value below $500 may not often represent a profit opportunity and, based on the histogram, this may occur one in every six trading days. As another example, a trader who plans to capture only the relatively large movements in the E-mini S&P 500, say beyond a $2500 Daily Range Value, should realize that such movements have in the recent past occurred only about 9% of the time.

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Futures trading involves substantial risk and is not for everyone. Only risk capital should be used.
Keywords: E-mini profit, E-mini profit potential, day trading profit, day trading profit potential, E-mini day trader profit, E-mini Daily Range Value
Abstract: Measuring E-mini profit potential of day trading E-mini S&P 500 futures.

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