Choice of Market

The market you choose must have certain characteristics if you are to be successful:

  • It must be within your financial capacity. Trading too large a contract introduces too much trading risk. For example, with a $10,000 account you could not consider trading the large S&P 500 index futures contract at $250 per S&P point, but you might be comfortable with the S&P 500 emini contract at $50 per point.
  • It must be volatile. A day trader relies on there being sufficient market movement to capture significant profits each day. For example, it is not unusual for the S&P 500 index to fluctuate by 20 to 30 points per day (sometimes more), so there is plenty of opportunity to profit at $50 per point. If daily movement were no more than one or two points, the day trader would look elsewhere.
  • It must be liquid. You need a lot of trading volume, so that you can buy or sell with ease and slippage (the difference between the quoted price and the price you actually receive) is small. Avoid markets with low daily trading volume.

It is usually necessary to choose your trading times carefully. Even in 24 hour electronic markets there are busy and quiet times. Generally, the opening and closing periods of the traditional market sessions supply the greatest volatility and liquidity. Thus for a contract like the Dow Jones, it is best to trade during the normal floor trading times at the New York Stock Exchange. The grains are best traded between 8:30am and 1:15pm Chicago time. Currencies are good during the US morning sessions, and are also quite good during the first two hours of their home country’s business day. For example, the British Pound is generally good between 8:30am and 10:30am London time. Trading in electronic sessions outside main session times introduces substantial additional risk and should be avoided.

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