Why Are E-Mini Traders Raving About the Mini-Dows
Markets rise on a day-to-day basis because current demand exceeds current supply. This has nothing to do with being in a secular bear market, a cyclical bull market, high P/E ratios or current cycle work. This has everything to do with what traders are willing to pay for a stock today.
It doesn't matter if the demand is falsely created by a hedge fund “taking the street” (buying large amounts of a single stock to drain a market maker of its inventory, forcing them to buy it back at a higher price).
Or a squeeze that whacks shorts and forces them to cover, or a rumor that another terrorist has been captured. Demand is demand and that is what drives markets higher.
The inverse is equally true: If there is too much supply in the market, prices will fall. Although supply and demand can be more difficult to measure with a single stock, it is very easy to measure with a popular index such as the Dow.
This is why I feel strongly that one of the best contracts out there to trade for both beginning and professional traders is the Chicago Board of Trade’s mini-sized Dow futures contract.
Here are the reasons why I trade the . . . .
1. Small Account Size
For stocks, the trader needs a $25,000 account to day trade. To day trade the CBOT mini-sized Dow, the trader only needs to open a $5,000 futures account. To buy (or sell) one contract, he typically needs $2,000 in his account (minimum amounts and margins can vary by broker, of course).
2. Much Cleaner than Stocks
I started off as a stock trader. Every night I would run my scans or manually scan through hundreds and hundreds of charts. During the trading day, I would watch the indexes, and if the indexes broke out, I would look to buy stocks such as KLAC or QLGC.
Sometimes the stocks moved with the indexes, sometimes they didn’t. I remember frequently being right on the market, but watching the particular stock I chose to trade go in the opposite direction because of a surprise announcement or news article.
If I wanted to short a stock, I would have to wait for an uptick, or set up a bullet with my broker – an option that has recently been taken away.
Buying and shorting the same stock every day for a couple of days generates mean messages from your broker, and can generate Reg T margin calls as the stock sales take 3 days to settle. This is trading? This is like going into battle with a broomstick.
Mini-sized Dow futures were built for intraday traders.
The markets are electronic, so the fills are nearly instantaneous. There are no uptick rules for shorting. If you want to short, you short.
You don’t have to scan 300 charts every night. At the end of each day I like to look at the weekly chart of the Mini-sized Dow, and drill down through the daily, 60, 30, 15 and 5 to get an idea of the key levels for the next trading day and the short term trend. You can buy and sell and short and cover as much as you want – everything is cash settled at the end of each trading day, so you don’t have to wait multiple days for “settlement.”
Many stock traders are intimidated by futures, but in reality it is just like buying or selling stock. In my experience, once people switch over to futures, they feel like their blinders have been lifted and they never go back to stocks.
2. Bang for the Buck
For disciplined traders who use live stops, the leverage in trading mini-sized Dow futures over stocks is a huge plus.
3. Better Spreads than the E-mini S&P
The mini-sized Dow has the same specifications as the popular E-mini S&P contract:
The key here is that a trader will get picked off on stop runs less frequently if he or she uses the CBOT mini-sized Dow over the E-mini S&P.
Why is this? The E-mini S&P moves one point in four quarter-point increments. The mini-sized Dow will move an equivalent ten points in ten one-point increments, giving the trader six extra places to place a stop or target.
This is a huge advantage over trading the E-mini S&P and will save a trader a lot of money over the course of a trading career.
By trading the mini-sized Dow, the trader is essentially cutting the spread by 60 percent. That money goes straight into the trader’s pocket. In addition, the spread on the NQ is even wider, and it moves 1 point in 2 increments instead of 4.
4. Liquidity
Although perfect for the smaller retail trader, the CBOT mini-sized Dow has caught fire and now has the liquidity to move size, chalking up trading volume of more than 60,000 – 70,000 contracts daily.
In trading, volume begets volume, so it’s highly likely that volume will expand even more as traders, commodity trading advisors and managed funds take advantage of the trading advantages for this contract.
5. Tax Advantages
If you trade only stocks, you may not now how nice it is to trade only futures when it comes time to do your taxes.
I’m not a tax accountant, and you need to consult your accountant for your own situation. But in my experience, with the mini-Dow you don’t have to list your individual trades. Your broker sends you a 1099 at the end of the year, and this is all you need for calculating your income taxes.
Second, this 1099 is automatically treated with the 60/40 rule, meaning 60% of the amount is treated as long term gains, and only 40% of the amount is subject to the higher short term gains tax laws.
6. Visual Alerts
A trader can watch the 30 stocks in the Dow to get a very good idea of how the index is acting or is going to act. Getting a feel for all 500 stocks in the S&P 500 at a glance is impossible.
If a trader currently is in an individual stock, he can have all kinds of outside influences move the price.
Maybe insiders are dumping their own stock. Maybe an analyst has just issued an upgrade while his trading department is dumping shares off to an unsuspecting public. Maybe the company is giving positive forward guidance as its last hope to stave off bankruptcy proceedings. The factors affecting an individual stock are endless.
However, when investors in general want to sell stocks, the Dow reacts by heading south.
If they want to buy, the Dow spurts green. The “Dow effect” encompasses individual investors, hedge funds, program traders and arbitrage traders. In addition, the Dow moves actively in all buy and sell programs.
Supply and demand at its finest, and this is what makes the mini-sized Dow futures contract such a beautiful instrument to trade. The best way to trade it, of course, is not by emotion, but by utilizing a simple, proven setup to taken advantage of the daily movements in the market.
I’ve watched many stock traders, as well as many Emini S&P and Emini Nasdaq traders, trade the Mini-Sized Dow for 1 day and it’s like a light clicks on in their heads.
In addition to everything I’ve highlighted, traders find trading the Mini-Sized Dow instinctually more natural to trade.
They have watched it for years, it’s so clean to trade, and it allows them to really hone in and focus on one market. Once traders try the Mini-Sized Dow, their search for the best trading vehicle is usually over.
Get in on what I believe to be the most perfect market and strategy now I’ve ever found. You can download the course right now, and could potentially be trading by tomorrow!