Emini Trading System

Emini Trading System: Cash Market Shorty
  • Statistically Valid
    (5)
  • Ease of Use
    (4)
  • Simple To Master
    (4)
  • Robustness
    (4)
  • Durability
    (4)
4.2

Summary

Shorting the financial Futures markets is darn near impossible. Market forces are designed to punish short sellers and dissuade opinions that encourage investors to bet against the US stock market.

When attempting to short the US stock market, the logic and statistical inference must be established on solid bedrock. The logic must be flawless. Completely devoid of anecdotal evidence, perceived fantasies, leprechauns, and unicorn logic.

The ‘Cash Market Shorty’ financial Futures trading strategy attempts to exploit selling pressure that releases near the close of the NYSE and NASDAQ stock markets.

Exploit this Futures trading edge for quick short trades with extremely limited risk.

Emini Trading Strategy: The Short Side.

Today, we are going to develop an emini trading system from start to finish. This trading system is going to be a ‘scalping’ day trading strategy that is focused on the Emini financial futures contracts, including:

  • Emini SP500
  • Emini Russell
  • Emini Dow
  • Emini Nasdaq

This financial Futures, emini trading system will be a ‘shorting’ or short side only trading strategy.

Step One: Simple Observation

When I develop an Emini Futures trading strategy, I always begin by analyzing what is most obvious. I want to know what is most TRUE.

A casual observation of the Emini Financial Futures, as well as the overall stock market, is that it has a long-term UP bias. Yes, there are corrections, crashes, and crisis along the timeline. But the general drift is UP.

And when its not going UP, then we can count on the politicians, the Federal Reserve, or the US Treasury to do what they have always done. Which is start printing money and lowering interest rates below the rate of inflation. Predictably, the stock market moves higher in a jagged process. The cycle repeats itself over and over.

With this in mind, we know from simple observation that the Emini Futures and financial assets in general, will tend to outpace the rate of inflation.

Step Two: Drilling Deeper Into the Bias

The next step is drilling deeper into the data in hopes of gleaning more powerful information.

Since we know that the stock market drifts higher, we want to start asking some very basic questions, and testing some very basic ideas.

The first test is going to be very simple. We are going to be testing the ES or Emini SP500 Futures contract using only 15-minute bars. The test is outrageously simple in that we are going to buy at the open of each 15-minute bar and then immediately sell at the close of each 15-minute bar.

There are 27 (15-minute) bars total for each trading day. We just want to see what typically happens.

The following test results go back since the inception of the Emini SP500 futures contract:

ES Futures Trading Strategy

I want you to now focus on the column titled Profit Factor. Anything with a test result over 1.0 has a positive expectancy.

This test is telling us that if we simply buy (Long) at the opening of a 15-minute bar, and sell it at the close, then we can expect a positive result. However, notice that the Average Trade is never higher than $10 per trade. This is not enough of a bias for a stand-alone trading system.

Now, our next step is to look at these results and see if anything ‘sticks out’ or looks odd. I want you to focus once again on the Profit Factor Column….do you see it? Do you see anything odd or out of place?

Test number 26 is the ONLY 15-minute period where there is a negative expectancy.

To the untrained eye or the casual observer, this would not register as much of an event. The casual observer is biased towards looking for what does work. However, you need to look for ‘what does not fit’ or ‘what does not look truthful’ in our testing, observation, or theory.

The truth is hidden in the nuance. Your profits are hiding in the nuance. I want to draw your attention to test #26…

ES Futures Negative Expectancy

Notice test #26. This is the only 15-minute trading period where going LONG or being a buyer of the Emini SP500 futures contract yields a negative result.

What is this telling us? The 25th bar of the day is 15 minutes before the close of the cash stock market, ie NYSE and NASDAQ. The 25th bar of the day (15-minute window) is when nearly all futures traders will exit their positions to become flat for the day. Most day traders do not want, or cannot hold overnight positions because of the margin requirement. They must flatten.

Think about your own trading. When you are day trading a futures contract, and you are net long. At some point, you will need to sell, because you need to flatten your position.

This 15-minute window of time is statistically proven to be the very moment that selling pressure is going to most likely enter the financial Futures markets. We want to now focus on this particular tendency…the selling pressure around the cash NYSE and NASDAQ close.

The Close of the CASH market

Ok, so we now know that just before the NYSE or NASDAQ cash market closes at 4 pm EST, then the vast majority of Emini futures contracts holders will look to flatten long positions during this 15 minute period.

Let’s now take a closer look at how much selling pressure this will likely cause. And whether this selling pressure is enough for us to join the selling frenzy and earn a quick scalp profit to the short side.

The next series of tests will look at look at what happens if we short the Emini Financial Futures contracts if the stock market is higher or lower, as determined by the percentage change at exactly 4 pm of the trading day…

TEST #1: Shorting a bullish stock market close. Don’t do it!

If the stock market, at 3:45 pm EST is up 1% or greater, then sell any financial Futures Emini contract at 3:45 pm EST and exit the trade at 4:00 pm EST.

futures trading system

As you can see, if the stock market is up 1% at the 3:45 pm EST close, and you attempt to short…you will have you’re headed handed to you! Don’t attempt to short a bullish rally!

However, what if we eliminate those ‘ bullish rally’ days where the market is up 1% intraday and focus our shorting activity when the market is not aggressively bullish?

TEST #2: Shorting a ‘less’ bullish stock market.

If the stock market, at 3:45 pm EST is less than 1% higher, then sell short the financial Futures Emini contract and exit the trade at 4:00 EST.

Futures Trading Strategy Better Results

See what just happened? The results completely flipped and this suddenly became a profitable short trade.

TEST #3: Shorting and even ‘lesser’ bullish stock market.

If the stock market, at 3:45 pm EST is less than .5% higher, then sell short the financial Futures Emini contract and exit the trade at 4:00 EST.

Futures Trading Results

The positive results continue to creep higher. Confirming that if the stock market is not outlandishly higher at 3:45 pm EST, then we have an exploitable downside bias during this 15-minute window.

Lets now take it a step further and only attempt to short the financial Futures Emini contract on a ‘weak’ stock market close.

TEST #4: Shorting a ‘weak’ stock market close.

If the stock market, at 3:45 pm EST is negative, then sell short the financial Futures Emini contract at 3:45 pm EST and exit the trade at 4:00 EST.

Short Trading ES Futures

The results keep getting better. If the stock market, at 3:45 pm EST is negative, then we can expect the weakness to continue to 4:00 pm EST.

TEST #5: Shorting a very ‘weak’ stock market close.

If the stock market, at 3:45 pm EST is down 1% or greater, then sell short the financial Futures Emini contract at 3:45 pm EST and exit the trade at 4:00 EST.

Excellent Futures Trading Results

Holy moly. We have something. A profit factor +2 with a generous average trade size for all of the financial Futures Emini Contracts.

And look at the sample size of hundreds of trades. A large sample size is really what you want to see. Why? Because of the larger the sample size, the more valid or truthful the results become. In other words, anyone can get lucky with a single lottery ticket, but if that same person were to continue to purchase lottery tickets…they would eventually lose all of their money. However, if a person purchased hundreds of lottery tickets and won the lottery dozens of times, then whatever method they are using is valid. In probability theory, this is called the Law of Large Numbers.

Conversely, our shorting strategy has a massive sample size. So if you continue to push this strategy, then the odds are exceedingly in your favor that you will profit over a long period of time.

Let’s do one last test…

TEST #6: Shorting an extremely weak ‘stock’ market close.

If the stock market, at 3:45 pm EST is down 2% or greater, then sell short the financial Futures Emini contract at 3:45 pm EST and exit the trade at 4:00 EST.

Final Futures Trading Results

Even better results. I especially like the Emini SP500 results with an average trade of $114 and a minor drawdown.

Where else can you earn $114 per trade…with only 15-minutes of exposure?

Wrapping Things Up

This was a really long blog post. So if you made it this far, then I have to congratulate you. My writing is terrible. Hopefully, the content makes up for the poorly expressed prose.

About this strategy, or any others that I have written…if you are confused by anything, just leave a comment below and I will do my best to explain.

For newbie systems traders and developers, the only stupid question is the question that you do not ask. Everyone starts someplace. The starting line, for all of us, is pretty comical.

To get off the starting line, and heading in the right direction…you need to ask questions.

Sadly, for many of us, we started the race by heading in the wrong direction. Which means that we started our Futures trading journey by reading crappy books on technical analysis, or bought a suite of useless invalidated trading indicators, or purchased a trading system not rooted in solid logic or joined a chat room moderated by a con artist.

The only solution is to turn around and head back to the starting line. Once you have arrived back at the starting line, then put your efforts into building a stable of ‘edges’ in which to exploit throughout the trading day. Today’s article is an example.

Here are some more examples of day trading strategies:

Thanks again for reading. And don’t forget to leave a comment below.

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Bond
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Bond

Yes very interested in the Tbond analysis and system!!

William Koesters
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William Koesters

“The test is outrageously simple in that we are going to buy at the open of each 15-minute bar and then immediately sell at the close of each 15-minute bar.”

I don’t get it. Why buy/sell? Why not just hold into the next 15 min open? Is there something I’m missing? On a neg trend this would be disastrous.

Marty
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Marty

Has anyone been trading this strategy? what are your real results?

First time poster. I read a lot of reviews and posts today searching for gurus that I could follow until I was a guro. Pretty disappointing that I couldn’t find one that has passed the test of time.

I appreciate your work, Emmett.

jay chen
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jay chen

Why do you believe TA is crappy? or are you just saying we choose shitty TA books in the beginning haha

EthanLuo
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EthanLuo

this is very good, thanks for your hard work!

John
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John

I’m not sure how you measure the performance of the stock market. You mention NYSE and NASDAQ is you post. So which is it? I know they have some correlation but they don’t always mirror each other. I was thinking of testing this out myself. Oh wait I’m a newbie so I don’t even have a platform data feed or even a sim account yet.

I’m curious has anyone else here tried to reproduce these results?

Clarsky
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Clarsky

NYSE and NASDAQ exchanges are not markets in this context, to get market exposure we would trade Emini futures since these are tradable contracts and are priced according to an underlying index. He backtested Emini SP500, Emini Russell, Emini Dow, Emini Nasdaq which are the most common US markets.

Bob
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Bob

Hi Emmett, I just want to make sure I understand what you are saying. In your writing you say it’s the 25th bar, the stats came up that the 25th bar was negative, but that would correspond with 12:30-12:45 and not 12:45-1:00? If your starting time for the test was 6:30 then that would put the 25th bar at 12:30-12:45. The 26th bar is obviously not good for a short looking at your results so I don’t want to go there, I’m just trying to understand why the discrepancy. Also, as to if the market is up or down for… Read more »

Bob
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Bob

Sorry west coast, 3:30-3:45PM EST