By David Adams
For aspiring e-mini traders, the contract of choice always seems to be the ES contract. I don’t understand that reasoning because the ES is among the most difficult of contracts to trade profitably. There are many reasons for this, which we will talk about later in the article, but the obsession with the ES, and the inevitable results, make it an unsatisfactory contract for new traders to start their trading careers.
I think I know why most new traders are drawn like moths to a light source when it comes to the ES contract. For example:
• The ES is the largest contract in the e-mini series
• The ES has a tremendous level of liquidity compared to other e-mini contracts
• The ES has a certain level of prestige each among e-mini traders
• Many trading educators teach the ES contract as the gold standard of e-mini trading
To my way of thinking though, these are all reasons not to trade the ES contract. The ES contract tends to be dominated by large traders and an undetermined level of automated trading. While the effect of automated trading is difficult to ascertain, there can be no doubt that the ES makes some unusual moves and, compared to times past, does not trend in the manner it once trended. There is a high level of retracement in each bar and inexplicable changes in direction are common.
It is not uncommon for me to have students come to me for help after they have been trading the ES for help. After a bit of training, and moving them to the YM contract, they begin to see positive results in their trading. Of course, there are those who would claim that the YM does not have the liquidity of the ES. That’s true. However, for e-mini traders trading less than 10 contracts I have never seen noticeable slippage on the YM contract. Granted, if you want to trade 100 contracts the YM is not the contract for you. But most traders, especially retail traders, trade less than 10 contracts and they can avoid the vast majority of the pitfalls encountered on the ES contract by simply trading the YM contract.
I do not mean to infer that the YM contract spits out money like an ATM machine. There can be times when the YM is difficult to trade, and you have to stick to your trading plan and methodology. On the other hand, it’s important to understand that the extraneous variables on the ES are not present on the YM. Additionally, one tick equals five dollars, so the learning curve is a far more gentle experience than the higher tick value on the ES contract.
In summary, I have pointed out the downside in trading the ES contract, especially for new e-mini traders. I have questioned why so many trading educators tend to start their new students on the ES contract, when contracts that are more conducive to learning are available. For me, the YM contract is the perfect contract to start short e-mini trading experience.
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