How To Day Trade Dow Jones Futures Contracts Like A Professional

Dow Jones Futures – Introduction

The Dow Jones Industrial Average (DJIA) is the second oldest US stock index in existence!

It is viewed as a strong indicator of the success of the US stock market and the US economy overall.

This index contains 30 of the largest US-based stocks trading on the NYSE and the Nasdaq and is known as the “blue chip” index because of the types of companies it tracks!

These days traders are able to trade the DJIA in many different instruments from CFD’s to ETF’s, options, and even futures.

Futures contracts provide a derivative instrument that traders can use to trade the index based on their directional bias.

To this point, the Dow futures contract tracks the price of the underlying asset which is the DJIA in the cash markets.

If you are looking to speculate on the DJIA, then trading the Dow Jones futures is your go-to market!

In this post, we will walk you through the different contract sizes & specs of Dow Jones futures, as well as offer some insights on how to day trade this market like a professional!

Dow Jones Futures – Contract Sizes & Specs

There are three futures contracts available that offer traders increasing amounts of leverage:

The E-mini Dow Futures Contract (Product Code: YM) offers the lowest amount of leverage and has a contract size of $5 x the DJIA. So if the Dow Jones closes at 26,000, the contract value will be $130,000 (26,000 x 5). Each point on this contract is worth $5/contract. This contract has a quarterly expiration (March/June/September/December).

The DJIA Futures Contract (Product Code: ZD) sits in the middle of the pack and has a contract size of $10x the DJIA. So if the Dow Jones closes at 26,000, the contract value will be $260,000 (26,000 x 10). Each point on this contract is worth $5/contract. This contract has a quarterly expiration (March/June/September/December).

The Big DOW DJIA Futures Contract (Product Code: DD) offers the most leverage with a contract size of $25 x the DJIA. So if the Dow Jones closes at 26,000, the contract value will be $650,000 (26,000 x 25). Each point on this contract is worth $5/contract. This contract has a quarterly expiration (March/June/September/December).

While the three contract sizes will suit nearly any risk appetite, we prefer to day trade the E-mini Dow Futures contract as this is the most popular one of the bunch.

As such, the remainder of this post will focus on the YM futures contract.

Dow Jones Futures – Margin Requirements

If you are new to futures and are not familiar with the intricacies of maintenance margin versus day trade margin, check out this post before reading on.

Many brokers will have different margin requirements for certain futures contracts on an intraday basis (day trade margin) and on an overnight basis (maintenance margin).

The above screenshot is taken from the website of AMP Futures (our favorite futures broker) and shows us the margins required to trade the Dow Jones mini contract.

As day traders, we start the day in cash (no open positions) and close the day in cash as well (ideally with more than we start the day with)!

We do not hold trades overnight, which means that we are not really affected by the maintenance margin.

So how much capital do you need to have in your account in order to place a day trade on YM with a single contract? $500!

Yes, you read that right! Only $500 to get some skin in the game!

What if you hold on to the trade into the last 5 minutes of the trading session? That $500 margin requirement shoots up to $5,900.

If you do not have this much cash in the account, the broker will close out the position manually and charge you a hefty fee for doing so!

So to recap, as day traders, we are able to get exposure to the movements of the DJIA with only $500 of margin!

While the low daytrade margin requirement makes futures accessible to retail traders,  we do not recommend starting with any less than $3-5K in order to give yourself the best chance of survival!

Dow Jones Futures – Liquidity

The YM futures contract actually attracts most of the trading activity among the three types of Dow futures as these contracts are traded by retail and institutional traders alike.

The chart below shows that the YM Dow futures have an average daily trading volume of above 150,000 contracts on any given day.

This type of deep liquidity means that YM futures are a perfect market for the day trader to get in and out of positions intraday with relative ease and little to no slippage!

Dow Jones Futures – Best Hours to Trade

US Equity futures trade around the clock from Sunday evening to Friday evening with just an hour and fifteen minutes break each day.

Just because they are open for a majority of the week, does that mean you should always be at your desk looking for opportunities?

Not at all! That would lead to a lot of frustration and an eventual burnout! We often tell our traders to fit trading around their schedule not the other way around.

To this point, there are certain hours of the day that tend to see more volume and volatility than others.

As you might imagine, since the Dow Jones is a US stock index, it is best to day trade the futures during the US session.

More specifically, the best time to trade Dow futures is between 9.30 am EST – 11.30 am EST and that’s exactly what we do together every morning in our trading room!

The reason for this is that this period is the overlap between the European session close and the US session open.

There is the most opportunity during this period as European traders are closing out their positions into the close which often leads to a nice increase in volume and volatility.

If you only have an hour or two each day to trade, this is when you want to be at your trading station!

Dow Jones Futures – How to Day Trade It Like a Pro!

We absolutely love the YM futures here at TRADEPRO Academy and in this section of this post, we will offer some insight into how we like to trade this market on a daily basis!

Before we jump into the tools and charts that we use, I would suggest reading this post on our favorite futures levels for an idea on how we determine our bias to start the morning.

Since we like to day trade order flow, our tools of choice include:

• Range Bar charts
• Footprint charts
• DOM & Heatmap
• Correlations

The Range Bar Chart

The above image is a 10 tick range bar chart. This is the chart that we use to determine our trading zones, identify the market structure and plan our trades.

As you will notice, there are several zones on the chart highlighted in green. These are the levels that we look to qualify potential trades from once the markets move into them.

In the above image, market structure is bullish so we would be looking to buy dips in this scenario. Can you tell me which level we would be looking to buy from?

Well, the zone between 26500 and 26490 seems to have acted as resistance previously before the market broke above it. Will the market respect this level as support on a potential retest?

Nobody knows for certain, but you can bet that we will be watching that level closely. If the market does get back into our zone, we will then zoom into the footprint chart in order to qualify a potential trade.

The Footprint Chart

Now we’re on the footprint chart and this is almost like an X-Ray into price action. We are able to see inside the range bar candles and identify imbalances between the sellers and the buyers.

Further to our example from above, there is a nice bullish imbalance level between 26489-26490, which lines up with our trading zone.

There is also the opening range low around this zone (blue line) adding to the confluence.

Everything looks good at this point! All that we need now is for the market to trade back down into our trading zone.

If we see some rotations building out support at this level, we can look to the heatmap and correlations to qualify a long trade.

Once the trade is qualified, we move over to the DOM to place our limits and execute the trade.

The DOM (Depth of Market)

Dow Jones Futures Trading – Depth of Market

Remember from earlier that each point on the YM contract is worth $5/contract!

So let’s say that we want to get long two contracts into the 26490 level and to take profit at 26520 (30 points) with our stop loss below our trading zone at 26480 (10 points).

If we get a fill on both contracts and the trade hits the full profit, we will stand to make $150/contract (30 points x $5/tick) or $300 altogether.

However, if the trade hits the full stop loss, we will stand to lose $50/contract (10 points x $5/tick) or $100 altogether.

Commissions on the DOW should be under $5 round-trip so net of this you will have made $290 if the above trade example goes to full profit. Whereas, you would stand to lose $110 after a losing trade on two contracts!

Dow Jones Futures – The Bottom Line

As with any market, you really have to do your homework and put in the screentime in order to see results from your trading.

We recommend tracking a market for several weeks before trading it in order to get in sync with the ebbs and flows of that asset.