Trading the E-Mini S&P Stock Index

Warren Buffett is famously one of the wealthiest individuals in the world. Those of us who put money in his stock over the years is also very well off. But there are other methods of adding to ones wealth. Here is one idea you may want to consider.

Trading the E-Mini S&P Stock Index.

The chart shows the progress of the E-Mini S&P Stock Index from a recent low point of 1375 at mid March of this year to 1514, where it closed on May 9. If you were aboard for the ride you made $6,950.00 while you risked about $2,500.00. A quick calculation shows a 278% return in a little less than two months. Want to know more? Let's go!

1. What is E-Mini S&P Stock Index?

The S&P (Standard and Poor's) Stock Index is comprised of the common stock of 500 of the largest corporations in America. Here is a representative sample:

Exxon Mobil

General Electric

Citigroup
Bank of America

Microsoft

Pfizer

Proctor and Gamble
The value of shares of 500 companies is added and then divided to get an index
number.i.e. 1514. A contract was fashioned by the Chicago Board of
Trade enabling speculators to bet on the direction of the S&P Index.
The contract was worth 500 times the index. The E-Mini is worth 50 times
the index or $75,700.00; 50x1514.

2. How do I know when the E-Mini S&P Stock Index is going up?

Nobody knows for sure. But there are signals that improve the chances of
telling which direction the index will take. I use three signals or technical
indicators.
a.
Moving Average Crossover
b.
On Balance Volume
c.
William' Accumulation/Distribution Indicator
Don't be nervous. These indicators are available on any charting
software program. I use www.prophet.net.. I've included a glossary which explains each indicator in more detail.

3. Decipher please.

The first signal is the moving average crossover. When the shorter term average,the blue one , crosses the longer term average, the red one, a possible buy signal is given .

If the On Balance Volume indicator turns up the signal is even stronger .

If the Williams' Accumulation/Distribution Indicator also turns
up, you have the perfect wave. Buy.

4. How Do I Get Started?

You need to open an account with a commodities dealer. There are many. Here is a list of some.

Lind-Waldock;

Ira Epstein;

Dorman Trading, LLC.

Follow the instructions they give you. Some require a larger deposit than others. You need a minimum of $3,000.00 to enter an order for one contract.

5. What About Risk of Loss?

Any commodity future carries substantial risks. You can lose you entire investment. When the amount of your equity goes below $2,500.00 the broker will sell your position unless you put more money into your account. It's usually wise if your looking to use the technique outlined in this paper to let the broker sell you
out.

You should discuss this strategy with a commodity broker. I'm sure they will give you many reasons for not executing the strategy and will emphasize the advantage of stop-loss orders. Stop loss orders can limit your risk in the short term. But using stop loss orders can also sell you out, needlessly.

The chart tells a story of history. It does not say the technique will work in the future. Only you can decide if the risk is worth the potential reward.

6. Glossary.

Moving Average, Simple

The Simple Moving Average is calculated by summing the closing prices of the security for a period of time and then dividing this total by the number of time periods. Sometimes called an arithmetic moving average, the SMA is basically the average stock price over time.
Note that because the Simple Moving Average gives equal weight to each daily price, the longer the time period studied the greater the smoothing out of recent market volatility. Long-term moving averages smooth out all the minor fluctuations showing only longer-term trends. Shorter-term moving averages will show shorter term trends but at the expense of the long term.
Most of the time prices are on one side or the other of the moving average. As trends develop, the moving average will slope in the direction of the trend, showing the trend direction and some indication of its strength based on the steepness of the slope.

On Balance Volume (OBV)

On Balance Volume (OBV) is a momentum indicator that relates volume to price change. Joseph Granville presented the idea that volume will precede price in his 1963 book, New Key to Stock Market Profits.
On Balance Volume keeps a running total of volume flowing into or out of a security. When the security closes higher than the previous close, all of the day's volume is considered up-volume. A close lower than the previous day's results in all of the day's volume considered down-volume. A rising OBV is defined as a sign of smart money flowing into a security. As the public then moves into the security, both the security and the OBV will surge ahead. If price movement precedes OBV movement, Granville calls this a "non-confirmation." Non-confirmations can occur at bull market tops, when the security rises before/without the OBV or at bear market bottoms when the security falls before/without the OBV.
When the security's price closes up, the day's OBV is created by adding the day's volume to the cumulative total. Subtract the day's volume from the cumulative total when the price closes down.
Look for rising trends (when each new peak is higher than the previous peak and each new trough is higher than the previous trough) or falling trends (when each successive peak is lower than the previous peak and each successive trough is lower than the previous trough) to signal a "breakout." OBV breakouts normally precede price breakouts and investors should buy long on OBV upside breakouts and sell short when on OBV downside breakouts. An OBV is moving sideways is in a doubtful trend and implies a hold until the trend changes.
It is the direction of the OBV line (its trend) that is important and not the actual numbers themselves as actual values will differ depending on how far back you are charting.

Williams' Acc/Dist

Developed by Larry Williams, the Williams' Accumulation/ Distribution indicator is used to determine if the marketplace is controlled by buyers (accumulation) or by sellers (distribution) and trading when there is divergence between price and the A/D indicator.
Williams recommends buying when prices fall to a new low yet the A/D indicator fails to reach a new low. Likewise, sell when the price makes a new high and the indicator fails to follow suit.
To calculate the Williams' Accumulation/Distribution indicator, determine:
True Range High (TRH) = Yesterday's close or today's high whichever is greater
True Range Low (TRL) = Yesterday's close or today's low whichever is less
The day's accumulation/distribution is then calculated by comparing today's closing price to yesterday's closing price. If today's close is greater than yesterday's close:
Today's A/D = today's close - TRL
If today's close is less than yesterday's close:
Today's A/D = today's close - TRH
If today's close is the same as yesterday's close then the A/D is zero.
The Williams' Accumulation/Distribution indicator is a cumulative total of the daily values:
Williams A/D = Today's A/D + Yesterday's Williams A/D

Good luck.