E-mini Trading: Is Scalping Dead? Is Swing Trading Dead?

By Author: David Adams
Total Articles: 41
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Whenever we, as a country, find ourselves in trying times the “doom and gloom” crowd comes out of the woodwork. I remember my first exposure to this phenomenon came back in the late 1980’s when an author whose name I have long since forgotten wrote a book entitled, “The Coming Market Crash of 1990.” Of course, the predicted crash never materialized and the market enjoyed a profitable decade, followed by a brutal correction in the information technology sector from which many speculative investors have yet to fully recover.

For whatever reason, people seem disinterested when the market turns out consistent gains; but it's “all hands on deck” when the market shows signs of weakness or the economy drifts into a recession. Obviously, there is money to be earned in the “bad news” line of business.

Things are never as good as they seem to be, and things are never as bad as they seem to be.

I have no idea who first introduced me to this very simple concept; by and large, though, I think it is a cliché that is well worth remembering. I have always been one to read pertinent articles about the ...
... trading business in general, and e-mini trading specifically. Usually hints of recession send a certain group of investors into the gold market, where the perceived risk factor is lower. It's not unusual for many investors to develop an emotional attachment to their gold investment. Even today, you can easily find a slew of articles predicting the top of gold in the $3000 – $5000 range. So, one of the first indications of a coming bumpy ride can be found in the price of gold. As an aside, this particular recession has sent the price of gold to all time highs. There have been hefty sums of capital gains banked by astute gold investors.

There are also a plethora of articles stating that investing as we know it is a thing of the past. Several articles in the article directories I read this evening were adamant in their claim that the days of scalping have come to an end. Of course, the members of my trading room and me would disagree just as adamantly that things are just fine. Granted, any new market variable will require a scalper to adjust his or her trading style in order to better adapt to a new investing paradigm; but scalping is far from dead as we are alive and kicking and enjoying handsome profits.

Another author claims that the volatility and randomness currently present in the market make it impossible to be an effective swing trader. I am not a swing trader, though I made a living for many years in the past as a swing trader. I have to admit that overnight trading and volatility have made swing trading a more difficult proposition than it may have been in less volatile times, but swing trading is far from over as there is a great many swing traders practicing their art with great success in the present market conditions.

There are definitely variables that must be given careful attention when trading in the current e-mini market more challenging, including:

• Added volatility can be measured in a number of ways, and your stop/loss targets must reflect that volatility. For example, if the Average True Range is at 36 ticks, it would be foolish to enter a trade with a 10 tick stop/loss. Common sense tells us if the range on a three-minute bar is 36 ticks, the random component present in all trades might well stop you out of your position before the trade has a chance to develop.
• In volatile e-mini trading situations, I like to dial back my risk some by trading fewer contracts than normal. This helps allow for unexpected breakouts or breakdowns, spikes, and abnormal movement by limiting the amount of money at risk.
• When trading in volatile markets, be aware that breakouts and breakdowns are more common than in markets with normal volatility. Use this feature of volatility to your advantage and, when possible, see if you can get a few of your trades to run. I find many e-mini traders who have dialed in an 8 pick tick profit target and exit at that point regardless of the market configuration at their exit point. See if you can get some of your trades to run; the potential for this type of market behavior is higher in volatile markets than flat or range bound markets.

Swing traders are faced with a much different dilemma than scalpers; they have to pick the direction of the market over a multi-day scenario. Right now, the market appears to be in a gradual downward slide, so swing traders are generally trading to the short side. But there's a problem here; we are currently living in very news oriented society compounded by a veritable grocery sack stuffed full of potential disastrous market outcomes. In my opinion, swing trading is a more difficult proposition at present than scalping. As scalpers, we are in cash every night and not subject to spikes and adverse news knocking us out of our trades as we sleep. That is not to say that we do not, as scalpers, get knocked out of trades. We do.

In summary, I have tried to emphasize that tough economic times bring out individuals wishing to capitalize on investor’s potential fear. That fear is usually illusory, and some modifications to your already successful trading style can generally compensate for volatility and uncertainty in the market. Remember one axiom: trade your chart, not the news, not the economy, and not public opinion. Trade the chart in front of you and you can succeed if you make some of the adjustments I have suggested a trade and a conservative style. Volatile markets are not a good time to be an overly aggressive trader.

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