E-Mini Trading: What Is the Big Deal With Order Flow and Market Internals?

I vividly recall retiring from The Street/CME with an early buyout and found myself wondering what I was going to do for the rest of my life. I had basically spent my entire life trading stock/bond/futures (wherever I was needed) and wasn’t sure I wanted to continue down that path. Even more disturbing was my unfamiliarity with retail trading. I’d heard e-mini trading was gaining some traction and thought scalping with smaller contract sizes could be an interesting and profitable career choice. Besides, it wasn’t like I knew how to do anything else.

After due thought, I signed up for a demo and was shocked. I thought the trading oscillators and indicators had a distinct Fred Flintstone quality. All the indicators available for use were J. Wells Wilder-style lagging indicators; simple and exponential moving averages, stochastic, MACD, RSI, ADX and a host of trading systems that went against everything I was taught at the institutional level; gone were my Tier 2 quotes, real time volume domes and real time proprietary software of the firm.

I suppose there are traders who make a great living using the lagging style trading model, but I have always had a problem with “showing up late to the party” when taking a trade. If this style of trading is profitable for you, I tip my hat. On the other hand, most traders I have observed trading with lagging indicators have developed a deep understanding of the market and sense movement intuitively.

Most of the lagging indicators are anywhere from.5 bar late to up to three bars late in getting you into a trade. In my mind, it is a quantum leap to assume that directional movement for two bars will translate into a productive trade in the same direction. With the level of randomness in the market and an absolute army of co-located computers (for High Frequency Trading) with which to do battle, I felt a little outgunned by trading the same machinery I had operated for most of my life. I was on the other side of the fence now, so to speak.

I muddled through several years of trying to make these laggards into a productive system, with some good success, but not the kind of success I enjoyed while I was a professional trader. I needed to know what was going on at the point of auction and size and scope of resting orders above and below the auction point on the DOM.

The last two years have produced some amazing real time order flow and tape reading programs. Jigsaw Trading has a wonderful suite of trading products reminiscent of the prop house trading programs where I got my start. (I want to note that I have no financial interest or agreements for compensation with the two companies I am going to discuss, I just like their style) Carl Weiss at Sceeto is my absolute favorite and the one I use in my trading room and personal trading. This program allows me to see the actual order flow, alerts me to periods of High Frequency Trading, reads tape and has a complementary set of indicators to further increase your trading accuracy.

I highly recommend investing in real time software, you will be amazed, once you learn the nuances of this style of trading, at the accuracy you can achieve. I suppose there is a small delay in order flow because of varying speeds of the data feed you may be using, but that is the only bottleneck in this style of trading. Carl has even added a new suite to augment Sceeto that performs wavelet analysis.

Though I prefer one of these real time programs over the other, they are both highly effective, relative to the slow oscillator models, than any of the retail trading products I have seen. While the real time software approaches the type of set up you might find a professional trader utilizes, it gives the retail trader a toolbox that provides useful signals far earlier than have ever been available. They have made this trader feel like a pro again, as oppose to take oscillator signals and hoping the market keeps going in the direction of your trade.

In summary, I have described some of the newer tools available to traders who may want to experiment with a more professional set of e-mini trading tools. Further, I have attempted to contrast the lagging style model to the emerging real time model of trading. Best of luck in your trades!

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