E-Mini Trading: Indicators? Oscillators? Which System Is Guaranteed to Work? - By: David S Adams

Anyone who has perused the Internet in search of potential e-mini trading education courses has been exposed to a wide variety of guarantees and outrageous claims. Many sites claim to have the latest and greatest new oscillator or indicator that will revolutionize the e-mini trading industry. Oddly enough, sites with these types of bold claims usually stick around for about a year and then disappear without fanfare.

To the initiated, much of this hype and hyperbole sounds very enticing. After all, who wouldn't want to learn and e-mini trading system that guaranteed fantastic profits with a few clicks of a mouse. It would be like having an ATM machine that spit out money at your command. Unfortunately, there is absolutely no system that can guarantee profits under any circumstance. As a matter of fact, the word guarantee and e-mini trading should never appear on the same page; there is absolutely nothing guaranteed in the trading business except there is a chance you could make money, and there is a chance you could lose money.

But what about all those fancy indicators and oscillators?

I am not a fan of indicator based e-mini trading, especially when they are used to evaluate trade setups. There are several reasons for my belief, some of which are:

• All indicators use historical data through an algorithm to produce output.
• Since the data is historical in nature, it generally lags the market by a bar or two. Even leading indicators lag the market because they rely on historical data.
• There is a degree of randomness in the market that is poorly understood and no indicator or oscillator can account fully for when random movement in the market occurs.
• There are a wide variety of oscillators and indicators available; some have a higher degree of effectiveness than others. Often times, using a set of oscillators or indicators together can produce a clearer picture of price action in the market. However, there is a significant margin of error using any indicator or oscillator.

Well, if you are a fan of oscillator and indicator based e-mini trading I certainly have not made you feel very well about the nature of this article. But after a long career in trading at the institutional level, I have seen over and over the problems associated with trading based solely on algorithm based indicators. While there is some merit to certain methodologies based upon indicator use, I find them far more useful in confirming trade setups I spot on my chart.

The key word in the last sentence is “chart.”

The only portion of your e-mini trading platform that gives instantaneous views of what is occurring in the market is the price action on your chart. So it is the chart portion of my platform that commands all of my attention. Most great traders pay special attention to support and resistance, volume, and price action when selecting trade setups. Why? Because this information does not lag the market. (Other than the time it takes to transmit the data from the exchange to your charting platform via a data feed) There are a great number of chart based setups that I have watched great traders use over and over with amazing success. I don't claim to have discovered these setups on my own, but I am fairly adept at copying what some of the great traders have discovered and implementing them into my own trading system.

The chart and the price action is where you'll find your setups. Indicators and oscillators are often helpful in confirming whether you are on the right track in your set up discovery, but they are not so helpful and initiating trades, in my opinion. Learning to read charts is a skill that will greatly improve your profitability and consistency. Consistency is the name of the game and trading. Every trader has a great day now and again, but professional traders are consistently profitable on a daily basis and the vast majority of these traders learn to trade by reading charts not oscillators.

As you may have guessed, I trade solely on chart base setups. There are some aides I use in the chart section to help me make good decisions; I employ Darvas boxes, Bollinger bands, support/resistance and trend lines to clarify the price action I have observed while reading my chart. I also pay close attention to volume readings in potential trade setups situations. I seldom even glance at the two oscillators use until I have found a potential e-mini trade set up.

In summary, I have pointed out that indicators and oscillators lag the market and are, in general, inferior methods for identifying trade setups. I have also pointed out that the only information that does not lag the market is the price action on your e-mini trading platform. Finally, I have suggested that learning to read charts to identify potential trade setups is a superior methodology for e-mini trading.

About the Author

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