Upon first examination, the Russell 2000 E-mini futures contract is intimidating to the uninitiated trader. If you had your heart set on trading the ES contract, which is by far and away the most actively traded e-mini offering, the Russell 2000 (called the TF) has an extraordinary amount of price movement; which is exactly why you should consider the TF as one of the contracts you add to your trading repertoire. This dynamic contract presents the experienced trader and well-trained novice trader with set-up after set-up on a daily basis. Yet, many traders inexplicably concentrate on the High Frequency Trading riddled ES (the S&P 500 e-mini) as their contract of choice. While I do not trade the TF exclusively, 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 trading movement and arbitrage related trading on the ES like the plague.
The Russell 2000 (TF) is based upon small-cap stocks and some consider it a bellwether indicator for stock market movement in general. That being said, I could care less. As a TF scalper, I am interested in the smaller moves the contract presents and capitalizing on trading those moves effectively. Which is not to say that I do not enjoy trading the larger moves the on the Russell e-mini, just that there are ample 20 tick moves to satisfy even the most demanding trader. The movement in the contract is what “puts off” many traders, yet it is this movement that can make the TF e-mini such a money machine, when traded properly. Don’t let the market noise in this instrument put you off; it can be traded effectively with the right tools.
Most TF trading can be classified into two broad categories; bracketed trading and trending price movement. Either way, the TF will present ample opportunities to initiate winning trades.
What is the secret to trading the Russell 2000 e-mini?
I pay close attention to bar by bar order flow in relation to the general market structure defined by Market Profile. Order flow is order flow; which means that once this contract starts to move in potentially profitable TPO’s identified in the daily structure of the market, you can simply watch the orders accumulate, either short or long, and hang in the trade until you see the specific area where traders driving the market in your direction lose interest. I should point out that lagging indicators are not especially effective on the TF because of the speed of some of the price movement. However, using real-time order flow data, you can observe the orders piling up on one side of the contract and trade in that direction with relative certainty. As a further aid, I am generally running a consolidated tape reading table to observe orders as they accumulate at each index price.
I also pay close attention to volume readings at known points of support and resistance to give me insight into whether or not a breakout or breakdown is imminent. You can observe the same on your order flow and notice whether the delta is increasing or decreasing at known support and resistance. Any quality order flow indicator will tabulate these deltas’ in real time for observation. You might note that real-time indicators are the name of the game for high percentage trading on this contract.
I would also recommend keeping the Average True Range (ATR) indicator under observation to determine whether or not the price movement is in your identified risk profile. For my purposes, I use 2x the ATR to determine my profit target and stop/loss point; if the 2x the ATR exceeds 25 ticks I simply wait for the price action to settle down and resume trading. In my mind, I am only willing to risk 25 ticks ($250) on any given trade on this contract. You should also keep in mind the size of your trading account when trading the TF; never risk more than 1-3% of your account value on a trade. If my $250 dollar stop loss is more than 3% of your account size, you would be wise to trade the Russell 2000 when the ATR is lower and more appropriate for your risk tolerance and trading account. Money management is important on the TF e-mini, as it is in trading in general.
In summary, I would encourage you to take a close look at the Russell 2000 e-mini and implement the real-time trading indicators I have identified. I have also stated that if you are a lagging indicator trader this contract will give you fits; I feel this way about all e-mini trading. Give the TF a look, and trade it in real time with one contract, which is all you really need on this dynamic contract. As always, best of luck in your trading.