Support and resistance levels for the Nasdaq 100 and S&P 500 E-mini futures contracts are posted each trading day before the market opens. Swing trade signals are also posted for the Nasdaq and S&P E-mini contracts after the regular market closes. Traders may substitute the QQQ or SPY tracking stocks or the enhanced index mutual funds for swing trades.

Markets move in certain predictable daily patterns which tend to repeat over and over again. By knowing which way the market is likely to move and the times that reversals should occur in advance, we have a tremendous advantage over most day traders. When the time and price forecasts are combined with our proprietary support and resistance levels (see below), we have a winning system available to only a very few day traders. Click on the links below to see recent examples of forecast versus actual time and price movements for the S&P E-mini contract.

ESU1-Aug 13
ESU1-Aug 14
ESU1-Aug 15

Four support and four resistance levels are calculated each day based on the previous day's official contract high, low and settlement, and are posted as S4, S3, S2, S1, R1, R2, R3 and R4. Levels S2 and R2 define the expected price range for the day, with levels S3 and R3 being the outside limits. Normally, we look to trade between S2 and R2, with S3 or R3 used as stops, depending on whether the set-up is long or short. We watch price movement into the open to determine the expected direction after the opening range movement. Usually, if the price gaps higher at the open, that will be close to the high for the day and the expected direction will then be down in the first couple of hours of trading. The reverse is true if the price gaps lower at the open. The only time we don't follow this rule is when price opens above R4 or below S4. On those rare occasions, we can expect a run-away movement in the direction of the open.

The TICK is a simple zero based indicator that is derived by subtracting the number of downticking stocks from the number of upticking stocks and indicates whether buyers or sellers are dominating the action. The TICK is a front running indicator for the futures and is a good predictor of the general market trend. When the TICK hits +900 to +1,000 on the upside or -900 to -1,000 on the downside, we look for a reversal in the E-mini. The only time this doesn't hold true is when the market is surging or tanking and then prolonged periods of +1,000/-1,000 TICKS are seen. It's also helpful to watch the TICK right after the open. Often times, the TICK will start out strong and then settle in, giving us an early clue to market direction from the open. There is a TICK indicator for both the NYSE and Nasdaq markets, but the Nasdaq TICK has proven less reliable because of the nature of the Nasdaq dealer market.

We normally avoid putting a trade on ahead of potentially market moving news announcements. This is because "death spikes" that both the ES and the NQ often make at the time the news is released can take out our stops. Quite often, the TICK will surge just ahead of the news and then settle back afterwards, giving a false TICK signal.

Equity index futures trade on the Chicago Mercantile Exchange (CME). Contracts trade for the Nasdaq 100 Index and the S&P500 Index in two contract sizes. For the Nasdaq 100 Index, the big contract symbol is ND, and the Nasdaq 100 E-Mini symbol is NQ. The ND contract is valued at $100 per index point, while the NQ contract is valued at $20 per index point. For the S&P 500 Index, the big contract symbol is SP and the E-mini is ES. The SP contract is valued at $250 per index point, while the ES contract is valued at $50 per index point. Trading index futures requires the posting of a performance bond (margin) with a futures broker. Margins are set by the Exchange and are adjusted periodically based on index volatility. Contract expiration months are March(H), June(M), September(U) and December(Z). Minumum price movement, or tick, is 0.50 index points for the NQ and 0.25 for the ES. Contracts are cash settled; there is no delivery of the individual index stocks. If you have never traded index futures, you can participate in Live Online Simulated Trading through the CME.

We believe that no leveraged trading system should ever be used without a good money management plan in place. Money management does not mean setting stops. That's managing the trade. A good money management method should be based on the trading system statistics. The accepted money management methods in general use today by traders are called antimartingales. The characteristics of antimartigale methods are that they cause geometric growth during positive trade runs and suffer asymmetrical leverage during drawdowns. Asymmetrical leverage simply means that as an account suffers losses, the ability to make up those losses decreases. The two main methods in use today are Fixed Fractional and the Fixed Ratio Method (FRM). Variations of Fixed Fractional's are the Optimal f system, Secure f and % Risk. A number of books and articles have been written about the Fixed Fractional and its variations. We prefer the Fixed Ratio method, which was developed by Ryan Jones and is described in his book The Trading Game, Playing by the Numbers to Make Millions. We like Fixed Ratio simply because it fits our trading system and is easy to implement. Basically, the method determines the maximum drawdown per trade based on the trading system statistics and then uses that amount to calculate the number of contracts that can be safely traded without destroying the account. For our system, the stop points determine the Fixed Ratio. The Fixed Ratio is the sum of the margin requirement ($2,000 per contract) plus the risk and varies with each trade recommendation. A $100 charge for slippage and commissions is included in the calculation. Starting with a recommended initial trading account of roughly two times the average fixed ratio amount, the FRM adds or subtracts the number of contracts that can be safely traded based on the trading account balance.

CAUTION: Trading index futures involves substantial risk and is not suitable for everyone. SMT makes no recommendations to buy or sell any security or commodity and provides this service for information purposes only. You should not trade index futures with money you cannot afford to lose. Past performance does not guarantee future results. Please read the Disclaimer.