Upon first examination, the Russell 2000 E-mini futures contract intimidates the uninitiated trader. If you had your heart set on trading the ES contract, which is by far the most actively traded e-mini offering, the Russell 2000 (called TF) has an extraordinary amount of price movement; which is exactly why you should consider TF as one of the contracts you add to your business repertoire. This dynamic contract introduces the experienced trader and the well-trained novice trader one setup after another on a daily basis. However, many traders inexplicably focus on the High Frequency Trading-plagued ES (the S&P 500 e-mini) as their contract of choice. While I don’t exclusively trade the TF, it is an important part of my daily trading day and is always displayed on one of my monitors. On the other hand, I avoid all the HFT consolidation trade movement and arbitrage related trading on the ES like a plague.
The Russell 2000 (TF) is based on small-cap stocks and is considered by some to be a benchmark for overall stock market movement. That said, I couldn’t care less. As a TF reseller, I am interested in the smaller movements that the contract presents and in capitalizing on the trading of those movements effectively. Which is not to say that I don’t like to trade the biggest moves on the Russell e-mini, just that there are enough 20-tick moves to satisfy even the most demanding trader. The movement in the contract is what “puts off” many traders, however it is this movement that can make the TF e-mini a money maker, when traded correctly. Don’t let the noise of the market on this instrument put you off; you can negotiate effectively with the right tools.
Most of the FT trade can be classified into two broad categories; bracketed trade and trend price movement. Either way, the TF will present ample opportunities to initiate winning trades.
What is the secret to exchanging the Russell 2000 e-mini?
I pay close attention to the bar-by-bar order flow in relation to the overall market structure defined by the Market Profile. The order flow is the order flow; meaning that once this contract starts to move into the potentially profitable TPOs identified in the daily market structure, you can simply watch the orders pile up, be it short or long, and hang on the trade until you see the specific area where traders drive the market in your direction loses interest. I should note that lagging indicators are not especially effective in TF due to the speed of some of the price movements. However, using real-time order flow data, you can watch orders accumulate on one side of the contract and trade in that direction with relative certainty. As an added help, I am generally running a consolidated tape read table to watch the orders as they accumulate at each index price.
I also pay close attention to volume readings at known support and resistance points to give me an idea of whether or not a breakout or breakout is imminent. You can observe the same in the flow of your order and notice if the delta is increasing or decreasing at the known support and resistance. Any quality order flow indicator will tabulate these deltas in real time for your observation. You may notice that real-time indicators are the name of the game for a high trading percentage on this contract.
I would also recommend keeping the Average True Range (ATR) indicator under observation to determine whether or not price movement is in your identified risk profile. For my purposes, I use the ATR 2 times to determine my profit target and stop / loss point; if double the ATR goes above 25 ticks, I simply wait for the price action to stabilize and resume trading. In my opinion, I am only willing to risk 25 ticks ($ 250) on any trade on this contract. You should also take into account the size of your trading account when trading TF; never risk more than 1-3% of your account value on one trade. If my $ 250 stop loss is more than 3% of your account size, it would be prudent to trade the Russell 2000 when the ATR is lower and more appropriate for your risk tolerance and trading account. Money management is important in the TF e-mini, as it is in general trading.
In summary, I encourage you to take a closer look at the Russell 2000 e-mini and implement the real-time trading indicators that I have identified. I have also said that if you are a lagging indicator trader, this contract will give you adjustments; I feel that way about all e-mini trading. Take a look at the TF and change it in real time with a contract, which is all you really need in this dynamic contract. As always, good luck with your operations.