Emini day trading course - how to use indicators for your trading

To those new to the world of emini futures, let me briefly mention what eminis are for they are still relatively new trading instruments.

Namely, eminis are smaller-sized contracts of "full-grown" futures contracts that have been around for a few decades. The "mini" part of their name has to do with their smaller size, several times smaller than the size of their older brethren. Unlike the latter that have been traded on physical exchanges, eminis have always been traded electronically, allowing small, retail traders with access to the Internet to compete against institutional traders from the comfort of their homes or home based offices, literally anywhere in the world. That's what the "e" in their name stands for, namely "electronic."

You can trade emini futures using indicators. You can also trade eminis without them, meaning by relying only on the price action and, perhaps, some simple tools like straight lines. Some of these lines can be horizontal lines, they indicate support and resistance areas, or they can be trendlines showing the support in the trending market. The breakout of the trendline suggests that the trend is about to change, and may even reverse depending on its strength.

While relying on the price action and simple tools mentioned above can be good in some situations, you can improve your trading decisions by incorporating indicators.

The simplest example of such indicators are moving averages of various kinds ranging from simple moving averages through exponential moving averages to a host of other, more sophisticated ones, although not necessarily better. Moving average lines play the same role as trendlines. Using more than one moving average, of a slower period and a faster one, can give us the idea of change in trend. This is usually noted by the crossing of such moving averages.

Other commonly used indicators are oscillators. They are more complex if only because they tend to be derivatives of moving averages. As such they are suitable to indicate the change in the market momentum. That's one of their particularly useful applications. They can also indicate situations when the market is oversold or overbought and thus likely to rebound from such extreme conditions. Unfortunately and ironically enough, since the overbought and oversold conditions are also indicative of strong upward and downward momentum, the market may as well continue its trend. Indicators of this kind include stochastics, RSI, and CCI.

Indicators can be used in two major ways. One was already mentioned, that is, to indicate certain market conditions, like a strong momentum. Another way is to time entries. That's how stochastics can be used, for instance. The crossing of stochastics lines, the faster with the slower one, can be employed to time the entry or the exit. Very often, the timing like that is of rather poor quality and that usually has to do with low market volatility, which leads to rather erratic price movement. High volatility is not so common, but when it appears, using indicators for timing the entries or exits can be about as good as using the price action, although the intelligent trader always tries to combine both, meaning the indicators and the price action patterns.

How to spot when the volatility is high? Well, again by employing indicators. For instance, the momentum indicators mentioned above. Or the trend indicators such as ADX.