Trend Following with Mini and Micro Contracts

Trend Following with Mini and Micro Contracts

Recently the CME brought to market the new Micro E-Mini Futures. The addition of these products make trend following trading with mini and micro contracts a great option for the small account trader. Trend Following strategies offer diversification and outsized returns for the disciplined trader. The long term trend following strategy buys into a market that is rising with the expectation that it will continue to move higher. It abides by the old adage, “cut your losses short and let your profits run” and applies a disciplined approach to entering and exiting the market without fear or greed influencing decisions. When a market surprises with a big upside move, trend following strategies are generally well rewarded.

Trend following strategies usually work best in a broadly diversified portfolio. Since you never really know which markets or sectors might trend big that year, it’s a good idea to spread your risk across each market sector and across as many markets as possible for maximum return and diversification.

For the small account trader, gaining maximum diversification can be difficult with full-size contracts as margins increase and the overleveraged trader can risk blowing up his account. However, through the use of mini/micro contracts and foreign markets, you can get decent diversification with lower margin rates. These contracts also offer excellent granularity for the smaller trader so one can implement a fixed fractional money management strategy or a value strategy based on contract size.

The following markets are worth considering for trend following traders starting with accounts less than $25,000:

Agriculture: Mini Corn, Mini Wheat, Mini Soybeans, Milk, Canola, Rapeseed
Energy: Mini Crude Oil, Mini Natural Gas
Currencies: Micro Australian Dollar, Micro British Pound, Micro Euro Currency, Mini Euro Currency, Micro Yen, Mini Yen
Stock Index Futures: Micro S&P, Micro NASDAQ, Micro, Russell 2000, Micro Dow Jones
Bonds: Eurodollar, Two Year Notes, Fed Funds
Metals: Mini Gold, Mini Silver, Mini Copper

Download the Micro Emini fact sheet to learn more