Algorithmic Trading with Micro E-Mini Futures

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How to start trading Micro E-Mini Futures with an Edge.


When we talk about Micro E-Mini Futures we usually think about Day Trading with a low entry barrier. Maybe because you are new into the Futures Market, or maybe because you came from more “traditional” markets like Grains or Commodities.

Anyway, since Micro Futures were available for Trading in May 2019, they have experimented a great success both for retail and institutional traders.

In today’s article we are going to learn some basic and still profitable trading strategies to trade Micro Futures.

Why Micro Futures instead of E-Mini Futures?

Trading Micro E-Mini Futures allows everyone to held Swing Trading positions without worrying about Margins, and even Day Trading positions for those who just started Trading and don’t want to spend a lot of money in the learning process.

In the current market conditions, a Micro E-Mini futures allows us to held a nominative value of 1/10th of a E-Mini future with similar trading conditions, like fees and spreads.

While the E-Mini S&P 500 contract’s nominative value is $50*Index Price, a single Micro E-Mini S&P 500 contract’s nominative value is $5*Index Price, at current price we can see that the nominative value in this case is $16,725. That’s an affordable value for almost any Futures Account, given the fact that most newbie traders don’t have much margin.

Speaking about margin, another advantage of Micro E-Mini contracts is that they have very low margins, starting from $40 for Day Trading and up to $1,300 for Swing Trading.

As you can see, they are affordable, since most new traders don’t have big accounts available to held positions on the regular E-Mini contract.

How Micro E-Mini Futures Works?

If I go to some online forums and ask this question, most people will answer this question wrong.

From an Algorithmic Trader’s perspective, this market is purely arbitraged using as reference both the E-Mini contract and the spot value of the Index, so we can state that this market is not a perfect replica of the spot index, as it can be on the E-Mini contract, since liquidity is bigger and also High Frequency Trading Systems are more common.

The first key point about this market are the abrupt movements on its micro-estructure due to more aggressive arbitrages.

In order to make a precise statement, i will give you a fact.

In what contract can we find more imbalances using Time & Sales?

The answer is E-Mini contracts since it has more volume, while Micro E-Mini arbitrages are done more aggressively, are done once its bigger brothers have reached a certain price, all of this happens in a matter of milliseconds.

You can test this idea using Tick Data with Metatrader 5 (The reason? Its free, historical tick data for the futures market beginning from 2020 without paying a dime.)

The number of ticks will be less on this market due to this fact, so, that’s another advantage when creating Algorithmic Trading systems since we are going to experiment less volatility in our entries and exits.

Trading Strategies for the Futures Market

In my previous articles, I already told some common strategies to trade, like Seasonal Patterns, in this article I will talk about them with more depth, as a guide on how to approach market indices.

Also you can see this strategies and some ideas in this video:

Price Action Patterns on Micro E-Mini Russell 200 Futures

Let’s forget for a moment about the basic Candlestick Strategies: Hammer patterns, Pinbars, Dojis and everything that has Japanese names.

We can use simple data-mining techniques to identify if Candlestick patterns has some value predicting prices.

Machine Learning in Futures Market M2K Russell 2000
Machine Learning in Futures Market

In this case, using ratios between Open, High, Low and Close prices from the current and previous price, we are going to try to forecast the next bar in the market. I’m going to stick with the first pattern provided by the JRIP Algorithm.

Let’s see how our raw edge performs:

Candlestick Pattern for Micro E-Mini Russell 2000 Futures
Candlestick Pattern for M2K

In this case, we see here that we have a useful edge, unlike common patterns, these works.

Can we filter this to see if we can improve it? Let’s find out!

Micro E-Mini Rusell 2000 Trading System
Micro E-Mini Russell 2000 Trading System

If we filter this to trade between 1 AM to 9 AM, and set a Stop Loss of $35 and a Take Profit of $10 we can see our chart improving.

We can add more rules in order to convert this into a great trading system, but that’s up to you. Let’s move to the next algorithmic trading system.

Seasonal Patterns on S&P 500 Futures

Our first strategy is probably the most simple one.

Why does the whole stock market tend to go up overnight? Why electronic time hours are the ones with less trend-following movements?

While the fundamental reasons are based on liquidity, being the main one that overnight we don’t have many pending orders in the Order Book, so prices can fluctuate with less resistance we can also state the other side of the fact, since in Electronic Trading Hours volume, and therefore liquidity is so wide, we can see some imbalances here giving us clues for the market’s direction.

As I said, we are going to check first seasonality patterns for the Micro E-Mini S&P 500 futures.

MES Futures Seasonals
MES Futures Seasonals

What happens if we buy from 1 am to 6 am a single Micro ES contract every single day?

Something like that chart, we are going to set some filters in order to trade this, but, as we can see here, we already have an edge that beats the market on the long run, from the year 2000 up to today.

In Summary

We have some interesting patterns for Micro E-Mini Futures, also for other Indices like Nasdaq and Dow Jones and even for E-Mini Vix Futures. The main point of this article is to show new traders how to develop interesting strategies while they learn how to trade the market.

If you want to learn more strategies, feel free to check my other articles, you can find interesting things to improve your trading.

Víctor – Follow the Edge.



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