Example One: An E-mini® S&P 500® futures day trader sits in front of a
5-minute bar chart
(at right) and watches the 4,9 and 18-period moving averages - the blue, red and green lines, respectively. Trade
signals are generated by a simple cross-over as follows: When the blue line crosses up through the green line, then buy and
when the blue line crosses down through the green line, then sell.
At 8:30 a.m., the E-mini trader saw the blue line cross down through the green line and then sold a futures at 905.50.
This short position was maintained until 10:05 a.m. when the blue line rose up through
the green line and the trader subsequently closed the position by buying back at 893.00. The result:
a realized net gain of 12.5 points = $625 per contract (not including commission and fees) for a trade
that lasted about 90 minutes.
Example Two: In the early morning hours on Jan 13, an E-mini S&P 500 futures day trader identifies an area
of support just above 869 (green line in chart at right) for the Mar 2009 contract. To trade a possible break-out, the trader enters a
stop
order to sell a contract should prices decline to 869.
At 2:00 a.m., the market declines to this price and the trader's short
position gets filled. To limit risk to $100, the trader enters a stop loss order to buy back at 871 (8 tick rally).
The E-mini trader then sets a trailing stop order as follows: If the market declines by 8 ticks from the entry price of 869, then
the protective stop order will start to trail the market lower by 8 ticks. At 2:20 a.m., the market declined to 867 and the
trailing stop was activated to buy back should prices at any time rally by 8 ticks. The worse case scenario now was a scratch trade
(not including commission and trading fees).
Over the next 50 minutes, prices continued to decline and all along
the protective stop order followed the market lower by 8 ticks. At 3:10 a.m., the market reached 861 and then subsequently
recovered, rallying 8 ticks to 863 which hit the stop order and automatically closed the short position.
The result: a realized net gain of 6 points = $300 per contract (not including commission and fees) for a trade that lasted a little over an hour and that at the start was set to risk only $100.
Example Three: An E-mini S&P 500 futures day trader using a 15-minute bar chart identifies an area
of resistance around 812-813 (green line in chart at right) for the Mar 2009 contract. The level held
for about an hour starting at 5:30 a.m. and was tested four times before prices fell away.
To trade a possible break-out should prices again attempt to rally, the E-mini trader enters a stop
order to buy a contract at 814.
At 9:00 a.m., the market rallies to this price and the trader's long
position gets filled at 814. Because this trader's time horizon is slightly longer than the trader in Example Two who uses
a 5-minute chart, the protective stop order is set to accommodate greater price volatility. In this case, the E-mini trader
decides to limit risk to $300 and enters a stop loss order to sell at 808 (24 ticks).
While prices do initially show strength, they subsequently retrace and 45-minutes after having entered the order, the
market touches the stop price and the trade is closed at 808 for a loss of $300 (not including commission and fees).
The E-mini trader records this trade in the log and notes that, after having been stopped out, the market rallies fairly strongly
such that if the initial trade had not been stopped out, then it would have been profitable. If this becomes a
pattern,
then the E-mini trader may decide to widen the protective stop order in the future.
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