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5 Emini Trading Strategies That Work | StoneX

Written by StoneX | Mar 8, 2024 6:00:00 AM

The E-mini lineup of products available at the Chicago Mercantile Exchange (CME) gives traders a variety of options. The Exchange offers many asset classes, including energies, equities, ag commodities, and metals. With so many viable alternatives, finding E-mini trading strategies that work is not as difficult as you may think.

In order for a strategy to be deemed viable, it must give the trader an edge. An edge is a competitive advantage — something that ensures the trading strategy will be profitable over time. All E-mini trading strategies that work have a quantifiable edge and typically fall into one of these five categories:

  • Trend
  • Rotational
  • Momentum
  • Breakout
  • Swing

Let’s take a look at one strategy from each of these disciplines that has historically proven effective.

Any trades are educational examples only. They do not include commissions and fees.

1. Trend Trading

When it comes to trading strategies, trend-following is among the most popular. One tried-and-true strategy for following trends is to buy or sell a Fibonacci retracement level in concert with the prevailing trend.

For instance, assume that E-mini copper (QC) futures have broken out to the bull on intraday time frames. To get in on the uptrend, buying a pullback in price can provide solid trade location:

  • Entry: Buy orders from either the 38% or 62% Fibonacci retracement of the intraday range.
  • Stop loss: Stop loss orders are best placed beneath the 50% or 78% Fibonacci retracement level.
  • Profit target: Aligning a 1:3 or 1:4 risk to reward is ideal for a trend trade, given adequate time for the position to gain value.

2. Trading Rotation

A rotational or compressed market lacks a direction and exhibits choppy price action. These markets can be a challenge to trade effectively because all market structure has broken down. Subsequently, implementing E-mini trading strategies that work for rotational markets takes time and patience.

However, compressed markets can be rewarding if approached within the context of a reversion-to-the-mean methodology. Assume that it’s a lazy Monday for the June E-mini S&P 500 (ES). A modest midsession range of 40 ticks has been established from high (2821.25) to low (2811.25). Also, no market-moving economic events are scheduled for the late session. Here’s one strategy to trade the lackluster action:

  • Entry: Buy within 8 ticks of the low (2811.25) or sell within 8 ticks of the high (2821.25)
  • Stop loss: Place 2 ticks above the daily high for a sell or below the low for a buy
  • Profit target: 8 to 10 ticks toward the point of control or mean of the intraday trading range

3. Momentum

Capitalizing on the momentum of price action is a favorite approach among short-term traders. Scalping and high-frequency strategies often rely on a spike in order flow to drive price a small distance before profits are locked in.

Momentum trading strategies are best executed during periods of extreme volatility. For instance, suppose that a momentum trader anticipates a positive run in April E-mini gold (QO) following a negative 8:30 am EST U.S. GDP release:

  • Entry: Immediately following the 8:30 am EST GDP release, a bracket-buy market order is initiated and filled at 1325.2.
  • Exit: Seeking instant positive momentum, the bracket order defines the profit target at 1326.0 and the stop loss at 1324.4. Risk and reward is a standard 1:1 ratio, ensuring that the liability of the momentum trade is moderate.

Any trades are educational examples only. They do not include commissions and fees.

4. Breakouts

Similar to trends, trading breakouts can be a great way of maximizing potential gains. Breakout trades are often used with larger risk vs. reward ratios in anticipation of a sudden directional move in pricing.

Breakouts are typically a product of institutional participation stemming from a market fundamental or violation of a key technical level. They frequently follow periods of compression and are enhanced by momentum traders and trend followers. Here’s an example of a breakout strategy:

  • Assume that May E-mini crude oil futures (QM) have tested the $59.90–99 area several times in a 72-hour period. In addition, the market has become compressed just beneath this range ahead of the weekly EIA inventories report.
  • Entry: Buys from $60.01 provide an opportunity to get in on a breakout. In the event that a bulk of short-position stop losses are above $60.00 and that momentum traders pile on to the increased order flow, a directional move is possible.
  • Stop loss: An initial stop loss is placed at $59.74.
  • Profit target: The profit target is placed at $60.74, representing a near threefold return on risk.

5. Swing Trading Strategies

The only multisession plan on our list of E-mini trading strategies that work falls within the realm of swing trading. Swing trading is an attempt to secure market share by holding an open position for several consecutive sessions.

You can apply the four strategies above to swing trading, simply by using longer time frames and greater risk vs. rewards. However, be careful: Swing trading involves larger margin requirements and potential liabilities. Although multisession strategies may be extremely profitable, they do carry an added degree of risk.

Develop Your Own E-mini Trading Strategies That Work

For more information on how the E-mini lineup of products can help you achieve your financial goals, schedule a free consultation with a member of the StoneX team today.