E-Mini Trading: Should You Use Lots of Indicators or Only One?

I have met experienced e-mini traders at both the institutional and retail levels that can read price action accurately and know what the market is doing at a given point of time. I never reached that level, nor do I expect to; an overwhelming number traders at the professional level (like 99.9 %) are extremely dependent on measurement, and rate of change, of market internal variables. How do you understand e-mini trading internals without a method to display the data?

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Common wisdom is that a simple chart is a good chart. Conversely, cluttered charts present too much information for the e-mini trader. Unfortunately, the market is not a simple mechanism, and simple solutions seldom provide elegant, let alone useful, answers to complex problem solving.

What is your approach understanding the market?

I don’t fall into the simple is better camp. Sure, there are rare individuals who seem to understand what each bar means in relation to the last bar, but I have met only a handful of these guys/gals. That being said, it’s important to measure certain aspects of the market empirically and it takes some methodology and a display mechanism. That sort of rules out the simple is better approach to e-mini trading.

I can hear you groaning at the last statement. You will argue that too much stuff clutters up your chart and beyond your ability to comprehend. I’ve seen this syndrome many times; a guy looks at a chart with four real-time indicators that is cluttered with support/resistance lines, trend lines, and throws his hands in the air and says “I can’t figure out what all this stuff means, these charts are impossible to understand.” However, anyone has to learn to trade more complicated charts in a certain fashion, not just thrown into the fire with a chart that he hasn’t been trained to read. I am an instrument rated pilot, and believe me I didn’t step into a plane the first time and exclaim, “I understand exactly how this contraption works, this is going to be a piece of cake.”

I like to isolate 4 variables on an e-mini trading chart and look for convergence of these variables to initiate and trade. Of course, each variable and its measurement and relationship to the other variables that interest me must be added incrementally and the interrelationship between variables must be honed with practice and experience. Just like the rare individual that resonates with pure price action, it is a rare individual you can look at a chart of less-than-common indicators and have any sort of comprehension.

My point is a simple one; in order to trade the markets effectively, the majority of us need all the information we can assimilate relative quickly to make trades profitable and consistent. Like any skill, there is no shortcut to understanding charts; it takes knowledge and the ability to apply that knowledge. This is a learned skill, and not necessarily an easy one. You need only revisit the failure rate among new traders; it’s over 90%, which is testament the value of learning to trade before jumping in headfirst into the market after reading a DYI trading book; the market is simply more complicated than slapping up the usual lagging indicators and trying to make a profit. Great traders are knowledgeable and experienced and have grouped variables together that resonate meaningfully with him/her to yield profitable trades.

Of course, to learn to trade with a modicum of information requires studying under a mentor; this will save years of trial and error, not to mention cash, and cut the learning curve to a fraction of the trial and error method.

In summary, I have stated my case for refuting the simpler is better mentality pervading trading education. Instead, I have suggested isolating specific interrelated variables and measuring the rate of change of these real-time indicators. Finally, learning to trade charts is something that is acquired over time. There are no instant shortcuts to success, and “dumbing down” your charts doesn’t improve your odds of profitable e-mini trading.

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