Rubber Futures Trading Basics

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The Tick Index Indicator: E-mini Futures Trading Basics for Big Profits

The TICK index indicator has been a tool of day traders of E-mini Futures trading basics. It’s often taught the opposite of what works.

The TICK index indicator has been a favorite tool of day traders of the E-mini futures trading basics for many years. However the way it’s traditionally taught is the opposite of what actually works in real trading.

Consider adding the tick index indicator to your trading method and it may take your E-mini day trading to a new level.

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VIDEO TEXT:

Welcome to this video on E-mini futures trading basics using the Tick index indicator. This is a powerful tool. It’s changed a bit over the years. So I want to share with you how it really works because I find that a lot of people are not teaching this correctly. Most successful trading is unorthodox or against what’s normally taught.

So first of all we have 2 things on our chart. These are 2 minute bars. So we got E-mini futures down here. And here we have the tick index indicator. Now some people call this the tick indicator, and that’s wrong. This is not an indicator, it’s an index. An indicator is something that is derivative of other things, mathematical formula. Things like price, volume, and indexes are just what they are. They are not derivatives of anything else. In this case they are basically statistics.

WHAT IS THE TICK INDEX INDICATOR?

What is a tick? A tick is when a stock, in this case, it’s based on the stock market, New York Stock Exchange, specifically in this case. It’s when a stock moves up. If the last trade is traded at a higher price than the previous trade, then that would be an uptick. And conversely if the last trade, trades one trades lower than the previous trade before that, then that would be a down tick.

Literally every single trade that comes through the market, is an uptick or a downtick from the previous trade. So very short term indication on the tick index indicator, that’s the first thing you need to know about it is that it’s a very, very short term indication.

Now I use 3 levels and these have changed over the years but in today’s market, I find these levels very helpful. First of all you get your midline. 0 is neutral, alright. And then I have got my upper line here which is 600. And then the extreme line which is at 1000. And then below here we have negative 600 and negative 1000. So these are very very extreme obviously. Anything around 0 is neutral.

Now here is what’s a little unusual. Lots of people will say that when you get down to these lower levels on the tick index indicator then that is bullish, that the marketing is getting oversold. And if you saw my videos on the RSI, you’ve heard me talk about this concept. That is not correct.

HOW TO PROPERLY READ THIS INDEX FOR E-MINI FUTURES TRADING BASICS

What’s actually happening here is we are getting bearish movements, so I put on my charts an audio alert. When the tick index indicator comes and hits this line here, or hits the very lowest line which happens much more rarely. Then an audio alert goes on. And that tells me that there is now a very bearish move in the market so my sentiment switches to bearish. And I don’t even have to watch the chart. I have it actually on a separate monitor.

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I don’t even really watch when the audio alerts go on for certain things. Then it alerts me to, oh, okay, wait a minute, this is bearish. So as you can see it hits the red line there, it hits the red line there. And indeed the market does end up going down quite a bit.

Now the other side of it is, we go down, we go hit the red line which is negative 600. As it retraces, we like to see it hold the zero line. Now it’s not going to hold it exactly. But what we don’t want it to do is go back up to positive 600, or the green line. So we want it to go down here, hit this level multiple times, and then as on the retrace, kind of stay here around zero. So there’s strength down and weakness up. And that creates the bearish movement. That is showing bearish sentiment in the market.

NEUTRAL MARKETS

Now in neutral market, is when the tick index indicator, just kind of hovers around the zero line because little bit above, little bit below. Little bit above, little bit below. Never hits negative 600 or positive 600. That indicates basically a choppy market. That’s one of the question I get a lot of people asking me. How do I stay out of a choppier market? Well this would be one way that you could do that.

Notice all of a sudden then, boom, we get a nice impulse move. And it goes up in positive 600. So now we become bullish and if you look at this, you know the market did basically go sideways during this time. Came after this low, and then it went sideways, and then once we hit that, then from here to there, yeah it goes up a bit, it’s not going up a huge amount. Again remember this is a very short term chart. This is best for scalping, real short term trading. This thing can change very quickly. We don’t go… the other thing is that we don’t go back up and hit 600 again, do we? So that’s a little bit of warning.

HOW TO READ THE TREND RETRACE

Now on the other hand, on the retraces, it is pretty much holding the zero line, and one way to know if it’s holding the zero line. Yes it goes a little below zero line. But look each one of these bars is still touching the zero line. None of them get completely below it. And most importantly, none of them get down to negative 600 on the tick index indicator. So that’s indicating to me that there’s still bullish sentiment here. May not have been as strong as the bearish sentiment we had over here. But, and that’s why it moves up on a more gradual basis.

Now look at this chart here, so again same principles. We start out, market doesn’t hit negative 600 or positive 600. Wait for the first time it does. Boom. There it is. Now notice price hasn’t really gone down that much. In fact up until this time, price action’s been going up. And then we get this. And from there on out market goes down. Notice by the way, again the same principle, goes below 600, when it comes back up to retrace, it holds the 0 line.

Every one of these bars is touching the 0 line. Goes back, hits negative 600 again. That’s a good sign. Retraces. Now it gets a little bit above here where we may not like it as much. But not quite as bad. But anyway you catch your quick little move. Again. Hey you know that’s what, maybe 30 minutes in the market. That you are maybe little bit longer than that. But hey not a bad little trade if you are a scalp trader.

HOW THIS WORKS IN REAL, LIVE MARKETS

Now let’s get realistic. Nothing works all the time. So I always love to show examples that don’t work on the tick index indicator. You know a lot of courses and things people just show you all the perfect textbook examples and everything looks great and then you go to trade it, and it ends like, hey why didn’t this work? Well that’s because nothing works all the time. In trading, we are not trading certainties, we are trading probabilities. So therefore you always have to have money management or risk management involved. Because nothing works all the time.

So here is a great example of that. I love to point these out in my courses and things that always do this because I want to get in your mind, the fact that, no I am not expecting this is going to work every time. So here we go, hit positive 600. Alright and sure enough the market, going up a little bit. That’s cool.

Now however it comes back down, and it doesn’t hit 600 again. But now it hits negative 600. Well that sucks right. It went from negative 600 to positive 600, then right back down to negative 600 again. Well yeah. Sometimes that’s going to happen.

The point is, you can’t use this alone. You need to put together a number of non coorelated variables to give yourself a probability scenario. There’s No holy grail and this isn’t a holy grail either. So this can be one extra piece of evidence that you use along with whatever trading method you’re currently using. But don’t use it alone, it is not foolproof. So I like to show you these examples.

VOLATILE, DIRECTIONLESS MARKETS

Now then, by the way after the tick index indicator goes down to negative 600, it goes right back up to positive 600. So it’s kind of crazy market right now, right. Very volatile. We hit big move in one direction, the other, another, another.

Finally it decides to settle in. so now it stays, keeps coming back here hitting 600, almost there. And on the downside, everyone in these bars is touching the zero line and therefore, at this point, works very well. And from this point out we can say okay, we can be bullish here. So becomes unidirectional. Most importantly, always have your money management, or risk management in place.

HOW TO TIME YOUR ENTRIES ACCURATELY

And, oh one of the things I want to mention too, is timing your entries. So what will happen is the indicator, or not the indicator but the index, it will come down and it will hit one of these levels. And, but if you enter that level you are basically buying when the market’s already down. I like to, if you do that you’re got to be paying retail, I like to wait for a retrace and pay wholesale. And I use my timing, or my cycle indicator in order to tell me when to get in. be happy to make that available to you if you subscribe to our YouTube channel, send me an email at [email protected] I’ll be happy to share that with you absolutely free.

Now here is the last example I want to give. We haven’t seen this yet. And this is more rare. Specially these days. But it does happen. And that’s where the index comes down to either negative 1000 or goes up to positive 1000.

Now back in the days of yore, I was always taught that that’s a reversal situation because it’s so extreme. And unfortunately then I actually started trading and I found out that wasn’t really so true. It is extreme. And sometimes the market will reverse off of that but again it’s really got to do with the dominant direction of the market. The market is in a dominant direction down. So it goes down, retraces a little bit. Goes down again. What’s happened, what happened there? Well it goes back and hits a negative 1000 again. And then it almost does it the 3 rd time.

OUR MARKET INSTINCTS ARE USUALLY WRONG

So this whole time, you know this pick is just a bearish bearish market. It’s usually not good to trade against the dominant energy of the market. And amateurs seem to always want to do that. I used to always want to do that too. I know, we all, as human beings seem to have some kind of instinctiveness that we just want to trade against the dominant direction of the market. Let me tell you, that’s the exact wrong thing to do. Always trade with the dominant direction of the market.

There’s times when you can trade against trend. That’s when it’s extended, and gets weak. You get an exhaustion pattern, things like that. So there are set ups for trend reversals. But believe me, even though the risk reward is good, the win loss ratio is not as good. And it’s just so much easier to just go with the flow of the money. So there you go. And so even these extreme.

And by the way, I’ll say one more thing here. I found that on these extremes of the tick index indicator, usually the number 3 is pretty darn good. So if you do want to look for an exhaustion pattern, wait for it to hit a 1000 3 times. Then look at everything else. Look for other things that would cause you to think that the trend’s going to reverse if those line up. after 3 times hitting a 1000 or negative 1000, you may just get a reversal at that time.

IN CONCLUSION

One last thing that I will say too, there is a tick index for the Nasdaq. And there is also a tick index for the DOW. I don’t find them to be as reliable. So you might think, well if I am trading the E-minis or the DOWN, maybe I’d want to or the diamonds or the Qs. Maybe I’d want to use the tick index for those markets. I don’t find them to really be as reliable. So I just use the tick index indicator no matter what I am trading.

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Rubber Futures Trading Basics

A futures contract is an obligation to buy or sell a commodity at or before a given date in the future, at a price agreed upon today. While the term “commodity” is usually used when referring to contracts like corn, or silver, it is also defined to include financial instruments and stock indexes. One of the benefits to the futures industry is that contracts are traded on an organized and regulated exchange to provide the facilities to buyers and sellers.

Exchange-traded futures provide several important economic benefits, but one of the most important is the ability to transfer or manage the price risk of commodities and financial instruments. A simple example would be a baker who is concerned with a price increase in wheat, could hedge his risk by buying a futures contract in wheat.

Not all futures contracts provide for physical delivery, some call for an eventual cash settlement. In most cases, the obligation to buy or sell is offset by liquidating the position. For example, if you buy 1 S&P500 e-mini contract, you would simply sell 1 S&P500 e-mini contract to offset the position. The profit or loss from the trade is the difference between the buy and sell price, less transaction costs. Gains and losses on futures contracts are calculated on a daily basis and reflected on the brokerage statement each night. This process is known as daily cash settlement.

US futures trading is regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). The CFTC is an independent federal agency based in Washington, DC that adopts and enforces regulations under the Commodity Exchange Act and monitors industry self-regulatory organizations. The NFA, whose principal office is in Chicago, is an industry-wide self-regulatory organization whose programs include registration of industry professionals, auditing of certain registrants, and arbitration.

If you are new to futures trading, be sure to check out our tips for futures traders & watch our FAQ video below. Get answers to common questions such as the role of commission in overall trading costs and learn how leverage can impact margin requirements.

For a free educational guide to “Trading Futures and Options on Futures”, provided by the National Futures Association (NFA), please click here.

Copyright © 2020. All rights reserved. NinjaTrader and the NinjaTrader logo. Reg. U.S. Pat. & Tm. Off.

NinjaTrader Group, LLC Affiliates: NinjaTrader, LLC is a software development company which owns and supports all proprietary technology relating to and including the NinjaTrader trading platform. NinjaTrader Brokerage™ is an NFA registered introducing broker (NFA #0339976) providing brokerage services to traders of futures and foreign exchange products.

Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. View Full Risk Disclosure.

What are the basics of futures trading?

Not sure if futures trading is right for you? In this article, we’ll help you find out by taking a close look at what futures are and how they work.

What are futures?

To start, here’s a quick definition: Futures are contracts for the delivery, or cash settlement, of many things you may encounter every day, like materials, products, or even the stock market itself. But what does that really mean? Let’s break it down by exploring a few key traits that make futures unique.

All futures share the following three characteristics:

  1. Easy contract trading. Futures are contracts that trade on an exchange. That means if you buy or sell them, closing your trade is as easy as it would be for a stock. The futures market is relatively deep and liquid.
  2. Settlement by cash or physical delivery. Like stocks, most futures—including the CME E-mini S&P 500 and other equity index futures—settle in cash. There’s no exchange of physical goods or shares of stock. The only thing that changes hands is money.

However, some commodity futures, like corn and soybeans, are physically settled, meaning each party to the trade is expected to deliver or receive the actual commodity at expiration. But very few futures contracts are settled this way, and at E*TRADE, while you should be sure to close your positions on time, there are mechanisms in place to minimize this risk.

  • Backed by commodities or other assets. Futures contracts represent the pricing of essential things that affect our daily lives, including agricultural products (like wheat and cattle), energy products (like crude oil and gasoline), and financial products that facilitate international trade (e.g., those involving interest rates and currency exchange).
  • Equity index futures are one of the most popular, providing another way for investors to trade on price movement in the stock market. These include the CME E-mini S&P 500 mentioned above, plus the CME E-mini Nasdaq and CME E-mini Russell 2000.

    What are the basic terms used in futures trading?

    Now that we’ve seen what futures are, let’s explore how they work by defining and illustrating some essential futures terms.

    • Tick . Futures contract prices move in minimum increments called “ticks.” These are different for each futures product and can usually be found by checking the futures page. As an example, the CME E-mini S&P 500 has a tick size of a quarter of an index point.
    • Tick value. Unlike stocks (where each tick is worth a penny), tick size for futures is product-dependent, and as a result, the dollar value will vary. The tick value of the CME E-mini S&P 500 is $12.50, so if you buy a contract and end up selling it, say, two ticks higher, you’d make $25.00, assuming no commissions or fees.
    • Contract size. The specified quantity behind each futures contract (i.e., how much of a commodity or financial instrument is backing that contract) is called its contract size. For example, the CME gold futures contract represents 100 troy ounces of gold.
    • Notional value. Knowing the size of a futures contract enables you to determine its notional value—i.e., how much each contract is worth. You can figure this out by multiplying the contract size by the current price of the futures contract.

    Consider gold: If gold futures are trading at $1,300 per ounce and the size of the CME gold futures contract is 100 ounces, the contract’s notional value would be $130,000 ($1,300 x 100). In dollar terms, that’s how much one gold contract is worth.

    If a contract’s notional value ever seems too big for your wallet, check to see if there’s a contract with a smaller size. With gold, there is. It’s the CME E-micro gold, which has a contract size of 10 ounces—and a notional value of $13,000 ($1,300 x 10). That’s one-tenth the size of the bigger contract.

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