E-mini trading is based upon the probability of winning/losing each e-mini set-up you enter. No matter the set-up, there is a possibility of either winning or losing, and your job as a trader is to enter high probability trades while avoiding low probability trades. On long or short trades, you must determine whether the set-up favors your ultimate actions or leaves you with a slim chance of winning. The problem is a simple one; how do you determine whether your entry will succeed or fail?
Trading is based upon your probability of winning or losing. That being said, how can you calculate trading probability?
Here is the vexing problem; you can’t. Quite simply there are too many variables that contribute to the price of any given equity index, for example; global socio-economic conditions, earnings reports, technical trading influences, correlated markets, natural disasters, political unrest… I think you get the idea. This list could take up several pages if you delve deep enough into pricing theory. Presently there is no known equation or algorithm that can result in an exact probability on given set-up; there are just too many variables to cover.
So, how in the world can we as e-mini traders expect to understand the probability of our efforts succeeding?
The best method I have used successfully is through the use of a commercial spreadsheet and meticulously noting the characteristics of each set-up. Some of those characteristics would include: