ER2 and the 34ema

[TinGull]

So...those of you in the chat room in the mornings know that Paul and I are goo goo ga ga over the 34ema and the ER2. I wanted to perhaps get some feedback on this methodology, as I really want to implement it.

I think I may start posting at the end of each session here what the opportunities were at the end of the day. Today, there were 8 total, one was after hours that I was papertrading.

It's a very interesting concept, and even if you take 2-3 of the opportunities that come up thats a nice supplement to the income stream.

The delta divergences that I use also tend to work well with this methodology, giving less total opportunities, but more defined ones.
I've attached a chart, so hopefully we can get some discussion going about this.

I'd love to know peoples' takes on stop placement, first of all. From the looks of it, one could place a stop right under the low of the bar prior and be safe. It gives a small amount of risk for the 1.00 looking to be gained.

I'm looking at a 233t chart and looking at this as a scalping method, not a longer term (5-30 minutes) method. This would be over and done with within 2-3 minutes most times. And getting 100 dollars per contract in 2-3 minutes....not bad.

So...let's discuss What are your thoughts on the strategy?

[TinGull]

Also...I think that having a holistic view of the market is very critical to this working. If you can see we're getting choppy, then dont attempt this. This can get you whacked up pretty good in a very tight rangebound market.

[MrPaul]

I like to use it when it's right in line with a pivot either for support or resistance. An example would be price at VAL on the chart you posted. Imo it is most effective this way.

[sudha78]

Please explain ER2 in detail or provide link to learn this in detail.

[Soultrader]

sudha78,

ER2 is just the name for the emini Russell contract. Are you familiar with emini index futures at all?

[MrPaul]

	Quote:	sudha78
	Please explain ER2 in detail or provide link to learn this in detail.

Hey sudha78,

The "ER2" is an e-mini stock index future contract

From CME:
CME® E-mini® Russell 2000® futures and options on futures offer investors an affordable way to trade the Russell 2000 Index, a key benchmark index for small-cap stocks. The CME E-mini Russell 2000 product is one-fifth the size of its standard counterpart and trades exclusively on the CME Globex® electronic trading system.

Link:
CME E-mini Russell 2000 Futures & Options

[TinGull]

	Quote:	MrPaul
	I like to use it when it's right in line with a pivot either for support or resistance. An example would be price at VAL on the chart you posted. Imo it is most effective this way.

I can totally see how it would be more effective at a pivot...I'll be paper trading this for sure tomorrow. It's got me very interested.

Also, Paul...how are you setting your stops?

[Soultrader]

Ive been paying attention to how the ER2 respects the 34ema as well. In hindsight it looks beautiful. However, a few things do make me feel uncomfortable.

The scalping method automatically assumes entry smack at the 34ema. Ive been watching the ER2 trade when it reaches the 34ema and it tends to reverse very fast. As the ema moves constantly, a limit order would be hard to place thus resorting to market orders. Timing the entry would be fairly hard.

Obviously, traders must learn to recognize chop from trend. In a choppy market this strategy can annihilate a trader. In a trending market this strategy works like a charm. However, in a rangebound market (not too choppy) the probability of wins tends to decrease. It becomes hard to identify which setups to take unless you add another filter; ex. pivot, tape, divergence, etc...

Ive also never been a fan of moving averages so applying this strategy into my trading would be a serious commitment. I'll keep an eye on it and try to combine it with some other techniques. Will keep this thread posted.

[MseTrap]

Despite the tight range, this is one of those fortunate days that the russell was very consistant. You had consistant higher highs and higher lows in the uptrends and lower lows and lower highs of the down trend. Trading from moving averages was ideal for these kinds of days. Also the market didnt suffer a lot a painfull consolidation before changing short term trends. The strategy would have made a profit today.
Here are a few things to try as well:
1) Instead of the moving average line, create a 34ema of the highs and 34ema of the lows, use this small channel to help avoid trading into consolidation or ranged cycles, which is the times you want to *not* be using a trendline for setups.
2) Create a MACD of the 5 and 34 ema values to better highlight divergance. This will help when market gets choppy and also provide a stronger signal when that pattern occures near of price of resistance or support.

[walterw]

Well Tingull , 34 and 50 emas are great dynamic S&R Levels... In my experience it has a 50/50 performance wich its ok... the key is having tight stops and long trails... so you have a RRR that will work on that performance ... if you are good detecting trending conditions vs cycling you can get up to a 60/40 performance ... it is a simple strategy and you can get good at it... nice thread indeed...