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 the most actively traded e-mini offering, the Russell 2000 (called the TF) has an extraordinary amount of price movement; which is exactly why he should consider the TF as one of the contracts he adds to his trading repertoire. This dynamic contract presents the experienced trader and the well-trained novice trader one setup after another every day. However, many traders inexplicably focus on the high-frequency trade-ridden ES (the S&P 500 e-mini) as their contract of choice. While I don’t exclusively trade TF, it is an important part of my daily trading day and it always shows up on one of my monitors. On the other hand, I avoid all HFT consolidation trading and arbitrage related trading on the ES like the plague.
The Russell 2000 (TF) is based on small-cap stocks and is considered by some to be a benchmark indicator for stock market movement in general. That said, I couldn’t care less. As a TF scalper, I am interested in the smaller moves that the contract features and capitalizing on trading those moves effectively. Which is not to say that I don’t enjoy trading the biggest moves on the Russell e-mini, just that there are ample 20-tick moves to satisfy even the pickiest trader. The movement in the contract is what “turns off” many traders, however, it is this movement that can make the TF e-mini a money maker, when traded correctly. Don’t let the market noise on this instrument put you off; you can trade effectively with the right tools.
Most TF operations can be classified into two broad categories; parentheses 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 overall market structure defined by Market Profile. The order flow is the order flow; meaning that once this contract starts moving at potentially profitable TPOs identified in the daily market structure, you can simply watch the orders pile up, whether short or long, and wait in the trade until you see the specific area where traders drive the market in your direction you lose interest. I should note that lagging indicators are not particularly effective in TF due to the speed of some of the price movements. However, by using real-time order flow data, you can watch orders stack up on one side of the contract and trade in that direction with relative certainty. As an added aid, I usually run a consolidated tape readout table to watch 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 an idea of whether or not a breakout or breakout is imminent. You can look at the same thing in your order flow and notice if the delta increases or decreases at known support and resistance. Any quality order flow indicator will tabulate these deltas in real time for your observation. You may notice that real time indicators are the name of the game for high percentage trading on this contract.
I would also recommend keeping an eye on the Average True Range (ATR) indicator to determine whether or not price movement is in your identified risk profile. For my purposes, I use 2x ATR to determine my profit target and stop/loss point; If the 2x ATR exceeds 25 ticks, I simply wait for the price action to stabilize and resume trading. In my opinion, I am only willing to risk 25 ticks ($250) on any given trade on this contract. You should also take into account the size of your trading account when trading with TF; never risk more than 1-3% of your account value on a trade. If my $250 stop loss is more than 3% of your account size, I 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 in TF e-mini, as it is in trading in general.
In summary, I 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 said that if you are a lagging indicator trader, this contract will give you fits; I feel that way about all e-mini transactions. Take a look at the TF and change it in real time with a contract, which is all you really need in this dynamic contract. As always, best of luck on your trades.
