Often traders take this to mean that the price must retrace or pullback from the high.  This is a big mistake, because mathematically, what is happening in the calculation of the indicator is that as each new bar is added to the price, another bar further back must be subtracted.  If the new bar is higher and the old bar is lower, you will get a classic divergence in the indicator.

Think of this phenomena of a fat man getting off a teeter totter with multiple small children on the other side.  Conversely if more and more small children get on the teeter totter, they can out weigh the fat man.

Another outcome of a Classic Divergence is that the price simply goes flat for a period of time, or you get a second or even third divergence.  Be cautious when trading divergences.  They can fool you, especially in a long up trend.

I encourage you to be observant of the strength of the divergences that occur when the trend that is changing is rapid or slow.  We have an excellent video that shows this effect  with a triple classic divergence.

Making practice trades allows you to:

• Test and fine tune your trading system.
• Learn to successfully pull the trigger.
• Perfect your charting system.
• Develop productive trading habits.
• Practice self discipline.
• See if you have what it takes to be a futures trader.

That last item is very important. You can have the best system in the world but if you don’t believe in yourself, if you don’t believe in your system, if you don’t have the passion to trade, no system in the world will make you a successful futures trader. Like I tell my students, successful futures trading is 90% attitude. Not everyone has the skill, passion, ability or discipline to succeed. Better to find out before you lose your money.

In my Futures Trading Secrets course I recommend that students practice trading on the e-Mini with Sims Broker until they achieve a certain level of confidence and consistency in their trades. Log and study your profits and losses. Look for patterns that indicate when you successfully pulled the trigger and when you failed. Work to increase successful strategies and decrease unsuccessful ones.

Develop successful daily trading habits and routines. Practice the discipline to stick to them even when you don’t feel like it or they don’t seem to be working. Discipline and routine are essential habits of the successful futures trader. Every trader loses sometimes. You have to have the discipline to follow your routine and have faith in your system even when you’re losing if you are to ultimately succeed.

Practicing futures trading on paper is important before you attempt the real thing. Before you start trading with real money, you must develop the discipline to control your emotions and stick to your system. Plunking down cold, hard cash opens the door to greed and fear which can submarine even the best system if not held in check. Practice will give you the skill, confidence and courage to succeed as a futures trader.

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Futures trading is concerned not with individual stock performance but with the macro logic of the market. Futures traders watch the indexes and overall market performance, not individual stocks. Remember, the market is always seeking equilibrium, constantly oscillating between previous highs and lows. Watch carefully and act quickly and you can make money on the rise and fall.

It is important to remember that futures day trading is not like trading stocks. When you invest in stocks, you’re in it for the long haul. You ignore the little ups and downs and don’t get that excited about the big ones because history has shown that over time (sometimes a long time), the stock market will stabilize and stock prices most likely will rise, earning you a profit. In futures trading, the history used is very short. Everything is done in the moment. Your one objective is to catch the current trend or reversal and to catch it again and again each time it changes.

At the end of the day, smart futures day traders cash out. You don’t want to be left holding anything overnight. The futures market is open 24/7. While the rest of us are recharging our batteries, the big boys move in during the wee hours of the night and fatten their trading accounts.  They create the difference between the previous night’s market close and the current morning’s market open — called the gap. If you didn’t cash out the night before, you could get caught in the gap — and be left holding the bag! Definitely not a place you want to be.

Phenomenal growth in the value of S&P 500 futures has put contract prices — $70,000+ per contract — beyond the means of many individual investors. The e-mini lets traders get in on the action on a scaled down version of the big S&P 500 futures market, as well as the NASDAQ and Dow indexes. Designed for individual investors, e-mini contract values are 50 times the underlying index, (at current levels you control $70,000 with only $500 in margin. All mini contracts are1/5 the size of a big contract. Offering leverage of up to 100:1 and virtually 24/5 trading hours, e-minis have the potential to reap huge rewards.

As with other day-traded futures, e-mini accounts are adjusted daily to reflect profits and losses. On e-minis the minimum price movement of a contract — called a tick — is smaller than with the big indexes, just .25 index points, or $12.50 per contract. A one-point move (4 ticks) would, therefore, be $50 per contract (12.50 x 4 ticks). Not enough to kill you if your system fails.

Trading e-minis is an excellent way to move into index futures trading. You get all of the excitement without as much financial risk. Trading e-minis allows you to hone your skills and refine your system, we can show you how.  Visit the Futures Trading Secrets website to find out how you can use e-minis to your advantage.