It's time to talk about the ES/S&P500 Futures and Sucking

This has been a recurring question of late. Newer traders asking "Is the ES always like this?" and it's time to discuss openly. 

The S&P500 Futures suck right now.

There - I said it.

People are struggling - especially newer traders. Those that didn't experience a 'normal' S&P500 Futures yet!

The whole world and his dog seem to be focused on trading the S&P500 Futures. There's a lot of content out there, including on our site that discusses S&P500 - and for this reason people gravitate towards it.

But this mass of content was mostly created before COVID. People still find it and it doesn't come with a "COVID Update". So this is our S&P500 COVID Update - 2 years after COVID started. Better late than never.

First, let's look at why we liked S&P500 before COVID:

  • It was medium-paced. Faster than index futures and interest rates but slower than Crude.
  • It had good liquidity at most prices in normal circumstances (but not after FOMC), with very little slippage.
  • It is based on US equities which are widely reported in the news.
  • On days where big news wasn't hitting it - it would put in lovely tradeable swings of 10-20 points and often put in 4 or 5 in a day.
  • It was market order-driven and so cumulative delta was a big help nailing down reversals.

COVID came, the liquidity disappeared and I guess market makers scaled back thinking there was a high chance of COVID news swiping the market and taking them out. I don't know - that's speculation - but our liquidity went and remember liquidity is the opposite of volatility. So less liquidity, more volatility and now the ES makes Crude look static.

The S&P is no longer medium-paced. It is wild. Pre-covid techniques are either no longer working OR need adjustment. You can't really finesse an entry most of the time - but still - new traders are going there first and struggling.

For new traders - especially those new to order flow and starting to do drills - it's too jittery. My experience says that at some point the ES will get back to it's old self. There's an ebb and flow of volatility in all markets and right now the ES is at an extreme. Using it to learn order flow or trading right now is going to lead to disappointment and it doesn't matter what techniques you pull from the internet - those that are pre-covid are going to need adjustment IF they work at all and IF you have the deeper pockets to get through the learning experience on such a volatile market.

Now - you can of course use the micros to trade - which is less risky but still exposes you to the same volatility. So you can trade smaller - but you still face a market that needs a very experienced hand to trade.

Looking at Crude right now - well it looks quite stately, it's more readable, it's a much better market for the beginner for trading and it's a much better market to do order flow drills on.

I get that there is so much info out there on S&P500 futures, it's natural to want to trade it. I personally haven't touched it since COVID took the liquidity away. To be honest, my thoughts were:

"hmmmm... COVID took away the liquidity, I'll come back when it all blows over. It might even be a couple of months"

So I'm obviously no fortune teller. The way it's moving - it's not my game - but there's other places to find the volatility I like.

So - for those new to trading or order flow. Please consider that the market is not the one being described in pre-COVID articles/education. It has changed, it's not friendly and it's not for beginners.

Keep an open mind now - you don't need to take my word for it - but take a look around at the alternatives. Right now, Crude and Gold are moving nicely. Gold might change if the S&P500 keeps moving down and if people see it as a safe haven and start piling into it. Interest rate futures are also worth a good look. Grains like wheat and corn are too. It's worth first going to the CME website, clicking Markets and going through them to find which have decent volume. Then spend some quality time with them.

What I like to do with people that are focused on ES and struggling - is have them set aside a few days to watch the order flow on other markets. To see, if one speaks to them in a way the S&P500 doesn't currently do. Focus on that first, as you build your skills and later on if/when the S&P500 Futures return to normal - you'll have built the skill to trade it - as it's returned to volatility you are comfortable working with.

Sticking with S&P500 like a dog holds onto a bone is going to be a very negative experience. This is not supposed to be self-torture. You don't have to leave - but I do think you should scope out other markets if the S&P500 is frustrating you right now.

Because to be honest - it's kinda awful right now.

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