Night Trading Emini Futures -- It's Not The Twilight Zone Yet

On holidays, the Syfy channel runs a Twilight Zone marathon. The Twilight Zone was comprised of 30 minute episodes, filmed in black and white, sparce settings, and almost no actors. They were specifically designed to leave you with an uncomfortable, eerie feeling that something like this may happen to you. Night trading emini futures is not the twilight zone yet. It is real. It is the next wave of buying and selling and you need to catch it. But you need to understand is how to invest in a quiet, lightly traded market and how to outsmart HFTs.

What is an HFT?

Wikipedia defininition of high frequency trading is: "execution of computerized trading strategies characterized by brief position-holding periods, in many cases taking advantage from microstructure inefficiencies. In high-frequency trading, programs analyze market data to capture trading opportunities that may open up for only a fraction of a second."

In a nutshell, an HFT is a robot trader. Most day traders tend to be technical analysts. They study the charts using "technical indicators" to determine their position entries and exits. defines a technical indicator as "is a series of data points that are derived by applying a formula to the price data of a security. Price data includes any combination of the open, high, low or close over a period of time. Some indicators may use only the closing prices, while others incorporate volume and open interest into their formulas. The price data is entered into the formula and a data point is produced."

But here is the problem with HFT's. While day traders are using technical indicators, HTF's use an entirely different algorithm to buy and sell. Algorithmic trading, also known as black-box, is where computer programs actually decide upon the entries and exits. These programs calculate the quantity of shares or contracts when placing the offer to buy or sell based upon the current market conditions, and then initiate the offer, all without human intervention. Very Twilight Zone'ish.

Why is night trading is so susceptible to HFT's? Because the market is slower and there are fewer offers being made, especially of larger size. Basically, there is little competition. An HFT offers to buy or sell, say 100 contracts, when the average offer is 1 to 3 contracts. This creates an immediate impact on technical indicators, as it changes the indicator's values.

Technical indicators are based upon 3 elements: time, price and volume. These indicators summarize and then average the price and volume and display the information as the market moves forward in time. If the average order is 1-3 contracts, that will produce a steady trending average and easy for night traders to follow. But if an order comes along that is outside the normal 1-3 parameters, then it skews the averages and makes it more difficult for night traders to follow. It's as if the order came from the Twilight Zone.

The key to night trading, or day trading for that matter (as HFT orders are prevalent in day trading hours as well), is to be able to identify entries and exits belonging to HFT's and ignore the technical indicators results for a while until the averages resume their steady trend.

So if you are a technical analyst and wonder why your trades are being stopped out on a regular basis, understand, it is not because you can't master the chart's indicators. It is because there are other players in the game who do not play by the same rules. Identify the new rules and it won't seem like trading in the Twilight Zone.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohenís Free Webinars. Check out my Futures Trading Articles. For more information, send an email to or call 866-617-2037 today.