The Power of $SPY and ES mini

The power of $SPY and ES mini

Successful traders promote fewer trading strategies than those promoted by unsuccessful traders. Anything I mention isn't a strategy that will make you rich. Trading is complex and does not have a one-size-fits-all plan. I am an order flow trader focusing on volume, timing, and interest in what participants do at certain levels. To help encourage all traders, new or intermediate level, I have made this reading public. I hope this reading helps with your 2023 trading.

COMMON QUESTIONS

Here are some common questions that deserve some clarity.

• What do I trade? $SPX, $SPY, /ES, /MES Primarily. After that, I stick with my main big-cap stocks. $GOOGL $AMZN $META $TSLA $NFLX $AAPL. As of lately, I've only touched half of these.

My main reason is since the splits of $GOOGL $AMZN, these have lost their importance to me since they are no longer big movers in the market. When I am trading, I look for liquidity and large movements.

• Why do I not have a list of 50-100 stocks to search through each morning like other traders?

My most inconsistent years have come because of my inability to focus. If you can have 100 stocks, stay focused, not miss plays, and contain emotions, then it is my guess. If I am focused on the same Index daily, I can follow what buyers and sellers do in that specific index or ETF.

$SPY ETF controls the majority of the market, so I am tracking this every day as it allows me to understand the movement and what other stocks may be affected the most or the least.

Here is a simple example from 2018: I could not find an updated chart. This should clarify why the whole market can get weighted down when a huge company takes a fall.

SYMBOLS & COST DETAILS

• $SPY

Your average investor understands the concept of the S&P 500 and how $SPY essentially tracks the average price of a large group of stocks. If you refer to the diagram above, you will understand that tracking1 ETF(group of stocks) while trading allows you to understand the direction of the market and the cause and effects of the economy much more. You get to see in real-time which companies are holding back $SPY from growth, which companies are trading in similar or opposite directions, and the impact that some major companies have. Since most people buy equity for long-term investing, most retail traders use options to make money on this ETF's volatility.

Once you master the S&P's movements and tendencies, you can mix that with economic data, earnings releases, FOMC, interest rates, etc. Some traders who do not track at least one index can lack a holistic market view. Successful trading is not about finding charts that appear bullish or bearish, but it's more about understanding timing, risk level, tendencies, and following price action.

I am not necessarily a chart trader, even though I sometimes like Bollinger bands. The last time I said this on Twitter, I had a few people make jokes. I am not saying I don't look at a chart; I am saying I do not rely on charts. Stocks move because of volume, price action, and news.

• $SPX

So, we know that $SPY is an ETF. ( a portfolio of companies that is designed to track a specific index, commodity, or sector of the economy)

While SPY is an ETF backed by actual stock shares in companies listed on the S&P 500, SPX is a theoretical index driven by the price of the S&P 500 itself. This means that it is impossible to buy directly into SPX since no shares can be bought and sold. SPY is an exchange-traded fund (ETF), while SPX is a theoretical index.

Because you cannot buy directly into $SPX, your only choice is to use it to trade options. THE KEY DIFFERENCES BETWEEN $SPY and $SPX options trading are speed of movement, cost, potential gains, and potential losses. For example:

• Let's say $SPY is trading at 350 dollars. If I buy a 360c for 1.00 with a 10-point move, I may turn the 1.00 into 6.00.

• On the other hand, if I trade $SPX options with the same expiration date, it may cost me more, estimating about 4.00, but that 10-point move is calculated as 125 points move since $SPX would have traded the equivalent of 3520 up to 3645.

• In its simplest explanation, there are just more numbers being calculated.

Further explanation:

SPY: 1.00 goes to 6 on 10 point move

$SPX: 4.00 goes to 14.00 on a 125-point move.

Also, for new traders, 1.00 means $100, 4.00 means $400, and 14.00 means $1,400 for reference.

• FUTURES (/ES, /MES and /NQ, /MNQ)

Futures are derivative contract agreements to buy or sell a specific commodity asset or security at a set future date for a set price. A futures contract involves both a buyer and a seller, similar to an options contract. Unlike options, which can become worthless at expiration, when a futures contract expires, the buyer is obligated to buy and receive the underlying asset, and the seller of the futures contract is obligated to provide and deliver the underlying asset.

For a quick reference, there are many types of futures that you can purchase:

• /ES and /MES -

Just like you would buy one share of a company, you are buying 1 unit of a futures contract. These futures contracts similarly track the benchmark index of the S&P 500.

ES (Futures) and /MES (Mini Futures) - I have them listed together because they are essentially the same thing; the difference is cost. /ES uses more margin and has a delta of $50. This means that for every 1 dollar the/ES moves, you make 50.

/ES

• This is great precisely because of how liquid the futures market is. You can have two lots, have the futures price go from 3900 to 3902, and make $200 bucks. The Micro E-mini futures contract (MES) has a $5 multiplier – making it 1/10 the size of ES. Before you think about what can be made, think about what can be lost.

• You need a minimum of $25,000 in an account to trade. The overnight margin is 10,000 per unit you are holding.

/MES

• This has a delta of $5. This means that for every 1 dollar the/ES moves, you make 5.

• You only need a $5,000 account minimum

• Margin costs are less.

Now, futures are only for some. You can make a lot of money quickly but also lose a lot if you do not have discipline. Therefore, it can get costly, but if you merge futures, $SPX, and $SPY, you have a group of strategies for different scenarios.

Remember that the ability to track the same price action but have three different ways to limit your risk makes these futures, ETFs, and indexes so powerful. Each asset has its characteristics and holding time length. Let us get into a few scenarios below.