What Makes a Good Emini Trading System?

Emini futures, electronically traded, smaller units of "full grown" futures contracts are among the most popular trading instruments out there. Their popularity is especially high among retail traders whose funds tend to be limited.

You don't need much money to open and fund a futures account these days if all you want to trade are eminis. Some futures brokers, especially those specializing in retail emini traders, offer margins as low as $500 per contract for intraday trading, which means that if you can afford $3,000, you should be well equipped to trade with 1 or even 2 emini contracts.

But to be able to make money, you still need a method to extract it from the emini market. You need a strategy or a system, the latter being basically a strategy that has been examined over a longer period of time in a systematic manner and has been determined to have a positive edge. That's what we are after: the positive edge as without it we cannot succeed.

No all emini trading systems are born equal. Some are better than other. Those that make more money over the same period of time are considered superior, to put it in a simple manner, but that's not all.

While making money is the main and practically the only goal of a trading system, there are better and worse ways way to do this. Of two really good emini trading systems that make as much money per quarter, one may still be better than the other if it accomplishes this goal in a smoother manner. To measure this smoothness, we often use the mathematical concept of standard deviation and by doing so, we way arrive at what is called the Sharpe ratio. The smoothness in question is a good thing as it translates into less stress when trading for we experience smaller drawdowns. That's one characteristic of a good trading system: small drawdowns. We also would like the drawdowns to be as short lived as possible, so by this standard, a system with more prolonged drawdowns, but the same money making power as another one, will be considered less desirable, less attractive.

We also often measure the drawdowns by the number of consecutive losing trades and the flat periods during which we are not increasing our funds, by the average time between the same peaks in the system equity curve, a line that shows how trading profits are being accumulated.

But that's still not all. One can still come up with more characteristics that discriminate between better and worse emini trading systems. Here is another example. The less often we trade, the better as this means smaller commissions and, again, less stress involved, so of two trading systems making the same money per quarter, the one that accomplishes this with fewer trades is better. In others words, it's the profit per trade that we are after when it comes to trading systems and not only the profit per se. The more we make per trade, the better.

For a well designed, robust emini trading system that served as an inspiration for this article and which has done quite well since its release in 2007, please see http://www.eminimethods.com/system_g4.html

Waldemar Puszkarz, Ph.D., is a web veteran with 15 years of web surfing under his belt. By training, he is a theoretical physicist, but his interests are much broader than science and include trading financial markets, sports betting, poker, and researching online business opportunities. He is also an avid book reader and sports afficionado. Currently he is making his living mostly as a day trader. He has been in the trading trenches for almost a decade during which he has traded a variety of financial instruments. He is the owner and webmaster of Eminimethods.com (http://www.eminimethods.com) which provides free common sense trading education and simple trading systems for e-mini and stock markets as well as reviews of honest online business opportunities in Meet HOBO section of his site.