Micro E-mini Dow Futures Strategy (Backtest)

Last Updated on December 22, 2022

The micro E-mini Dow futures offer a cheap way to trade the Dow Index — an index of 30 top stocks listed on stock exchanges in the United States. At one-tenth the size of the popular E-mini Dow futures, micro e-mini Dow futures make it possible for small-cap give retail traders to gain exposure to the Dow Index. Do you have a micro E-mini Dow futures strategy?

A micro E-mini Dow futures strategy refers to the techniques or methods that you can use to trade the micro E-mini Dow futures profitably. Micro E-mini futures are 1/10th the size of their E-mini counterparts. They can be traded electronically on the CME Globex platform and are financially settled upon expiration. You can use the contract to take positions in the Dow Index, either for hedging or speculation purposes. You can employ technical or fundamental analysis or both in your strategy for market timing, in addition to proper risk management practices.

In this post, we answer some questions about the micro-E-mini Dow futures strategy and we make a backtest.

What are Micro E-mini Dow futures?

The micro E-mini Dow futures are smaller versions of the popular E-mini Dow futures contracts; they are about 1/10th the size of their E-mini counterparts. The contracts are traded electronically on the CME Globex platform and are financially settled upon expiration.

The underlying asset of the micro E-mini futures is the Dow Jones Industrial Average (DJIA), but the contract size is small, making it cheap for retail traders with small accounts to participate in the Dow futures market. At just $0.5 times the index value, the micro contract size provides traders with the utmost flexibility, enabling them to be more precise in their risk management.

Micro contracts provide a cheaper alternative to retail traders, allowing them to take positions in the Dow futures to diversify their portfolio, speculate on the direction of the index, or hedge their exposure in the equities market.

What is a Micro E-mini Dow futures strategy?

A micro E-mini Dow futures strategy is the methodology or technique that you can use to profitably trade the micro E-mini Dow E-mini futures. This strategy is mainly used by retail traders with smaller accounts and would typically involve the use of fundamental and technical analysis of the Dow index to time the market, apply risk management, and determine the ideal position size.

To profitably trade the micro E-mini Dow futures, you need to have developed a solid trading strategy with precise market timing and risk management practice whether you are trading for speculation, hedging your exposure in the equity market, or diversifying your investment portfolio.

Micro E-mini Dow futures strategy backtest

A strategy backtest with trading rules and settings is coming shortly.

What is the seasonality of Micro E-mini Dow futures?

Seasonality in trading refers to the tendency of a security’s price to behave in a fairly predictable pattern during certain times of the year, these times can be months or seasons (winter, summer, autumn, and spring) of the year.

Historically, the Dow futures tend to have a better performance from March to May than the other months, as you can see in the chart below:

Micro E-mini Dow futures strategy
Source: Equity Clock

What moves the Micro E-mini Dow — What affects the Micro E-mini Dow the most?

Any factor that affects the Dow index would affect the micro E-mini Dow futures, and these are some of those factors:

  • The movement of the component stocks. The Dow index is price-weighted, so the index movement responds to changes in the component stocks that move the most.
  • Change in interest rate. Stocks are sensitive to interest rate changes and this in turn affects the price of the Dow futures.
  • Economic news. Macroeconomic news reports such as the manufacturing index, GDP growth rates, employment data, and so on, affect the price of the Dow futures.
  • Value of the US dollar. The growth of the US dollar often impacts the Dow futures negatively and appreciates when the currency falls.

How are Micro E-mini Dow futures traded?

The micro E-mini Dow futures contract can be traded electronically from anywhere on the CME Globex platform. The contracts are open Sunday through Friday from 6:00 p.m. to 5:00 p.m. ET the next day with a break from 5:00 p.m. to 6:00 p.m. ET for maintenance.

There are quarterly contracts (Mar, Jun, Sep, Dec) listed for 4 consecutive quarters. One contract unit is equivalent to the product of the current value of the index multiplied by $0.5. The price is quoted in USD and cents per index point. The contract is settled by cash, and trading terminates at 9:30 p.m. ET on the 3rd Friday of the contract month.

How do you start trading Micro E-mini Dow futures?

To trade the E-mini Dow futures, you need a broker that would give you entry to the CME exchanges where the Micro E-mini Dow futures contracts are traded and also clear your trades. So, to begin trading this contract, you need to register with a futures broker and fund your account. Since it is a leveraged product, you need not have big capital before you can trade this contract — you can trade it with just a fraction of the required amount (margin).

Additionally, you can trade the E-mini Dow futures using CFDs which are offered by some forex brokers such as IG and Avatrade. These CFD contracts are an agreement between you and the brokerage to exchange the price difference between the opening and closing of a position. CFDs make it easy to trade without worrying about a contract’s expiration.

What is the Micro E-mini Dow trading at?

As of December 16, 2022, the micro E-mini Dow futures was trading at $32,832. See the chart here on the CME platform. You can also see the live chart on TradingView.

Note that the price fluctuates from time to time and what was quoted here may not be the price it is trading as you are reading this post. To view the live chart, you can click on any of the links to take you to the CME platform or directly to TradingView.

What’s the Micro E-mini Dow futures hour?

The micro E-mini Dow trades electronically on the CME Globex exchange on Sunday 6:00 p.m. to Friday 5:00 p.m. ET with a daily break period from 5:00 p.m. to 6:00 p.m.

For CME ClearPort, the trading schedule is from Sunday 6:00 p.m. to Friday 6:45 p.m. with no reporting Monday – Thursday 6:45 p.m. to 7:00 p.m. ET.

Where can I find trading charts?

You can find trading charts on any trading platform that offers chat services. However, if your platform does not offer charts, you can use TradingView for free, though you need a subscription if you ever want to connect TradingView to your broker. From the CME platform, you can also view the TradingView chart.

Additionally, you can make use of Yahoo Finance, which offers free chart services, or you subscribe to a paid trading chart platform like Multicharts.

What are the trading symbols for Micro E-mini Dow futures?

The trading symbol for the micro E-mini Dow futures contract is MYM. The product codes for the various sections are given below:

  • CME Globex: MYM
  • CME ClearPort: MYM
  • Clearing: MYM

What is the specification for the Micro E-mini Dow futures contract?

One contract unit of the Micro E-mini Dow futures (MYM) is equivalent to the product of the index’s value by $0.50 (index’s value X $0.50). The price is quoted in US dollars and cents per index point with a minimum price fluctuation of 1 index point, which is equivalent to $0.50.

The contracts come in quarterly cycles of March, June, September, and December — contracts are listed for 4 consecutive quarters. Contracts are financially settled, and trading terminates at 9:30 a.m. on the third Friday of the contract month.

Why should you start trading Micro E-mini Dow futures?

The micro E-mini Dow futures gives you access to 30 prominent companies in the United States at a much lower cost per contract size with the benefit of trading with a small account. You have more flexibility with risk management and position sizing. In general, here are some of the reasons why you may start trading this contract as a retail trader/investor:

  • You can use it to diversify your investment portfolio.
  • You can use it to hedge risk in the equity market — just like institutional investors do with the bigger contracts.
  • As a trader, you can use it to speculate on the price of the Dow index and profit from the price changes — due to the use of leverage in the futures market, you can make a substantial amount of profits than trading Dow index ETFs in the equities market.

What is the contract size?

One contract unit of the Micro E-mini Dow futures (MYM) is equivalent to the product of the index’s value by $0.50 (index’s value X $0.50). So, the dollar value of the index will depend on the current quote in the market.

For example, given a price point of $32,832 at the time of writing this article, the US dollar worth of one contract unit of the micro E-mini Dow futures (MYM) would be $0.50 X 32,832 = $16,416.

What is the tick size?

The tick size of one contract unit of the micro E-mini Dow futures is $0.50.

What is the minimum price fluctuation for Micro E-mini Dow futures?

The minimum price fluctuation for the micro E-mini Dow futures is 1 index point.

Are there any ETFs?

Yes, many ETFs follow the Dow futures market. These are some of them:

  • SPDR Dow Jones Industrial Average ETF (DIA)
  • Proshares Ultra Dow30 (DDM)
  • Lyxor Dow Jones Industrial Average UCITS ETF
  • Invesco Dow Jones Industrial Average (DJD)

What factors affect Micro E-mini Dow prices?

The factors that affect the Dow index include:

  • The movement of the component stocks that move the most — the index is price-weighted.
  • Interest rate changes
  • Macroeconomic reports such as GDP growth rate, CPI, interest rate, and so on
  • Sociopolitical events like elections
  • The state of the economy

What is the all-time high for Micro E-mini Dow futures?

Based on the TradingView chart for the micro E-mini Dow futures, the all-time high of this contract is $36,832, which it reached on January 3, 2022.

What are the biggest risks in trading Micro E-mini Dow futures?

The biggest risks come from unfavorable price movements as the contract is leveraged even with its small size. When trading on a leveraged account, losses are calculated using the actual value of the contract size traded instead of the margin used. So, if you trade with a 10x leverage, it means that for every 1% negative drop in price, you will lose 10% of your account balance and an 8% drop will get you stopped out as you have no sufficient margin required to cover a position.

What is the settlement method?

Financially settled.

What is the settlement procedure?

The contract is settled by cash upon expiration. The final settlement is calculated based on the special opening quotes (SOQ) of the index on the final settlement day which is usually the third Friday of the contract month.

What is the block minimum for Micro E-mini Dow futures?

There is no block eligibility for this contract.

What is the difference between Micro E-mini Dow futures and the CFD for Micro E-mini Dow?

The micro E-mini Dow futures contract has fixed expiration dates whereas its CFDs can be traded continuously without much concern for contract expiration.

Which forex pair is the same as Micro E-mini Dow futures

Micro E-mini Dow CFD

What are some important dates for this market?

Some of the important dates for this market include:

  • 1896 when the Dow index was created
  • 2002 when E-mini Dow futures debuted on the CME platform
  • 2004 when options on E-mini Dow futures were created
  • 2019 when the micro E-mini contract was launched on the CME platform

What is the highest Micro E-mini Dow has ever been — its all-time high?

Based on the TradingView chart for the micro E-mini Dow futures (MYM), the highest level the contract ever traded was 36,832. This occurred on January 3, 2022.

What is the lowest Micro E-mini Dow has ever been — its all-time low?

Based on the TradingView chart for the micro E-mini Dow futures, the lowest level the contract has ever fallen to since 2019 when it debuted was 18,086, which happened in March 2020.

Conclusion

Regardless of whether you want to trade micro E-mini Dow futures to hedge your risk exposure in the equity market, diversify your portfolio to index futures, or simply speculate on price fluctuations of the Dow Index, you need a good micro E-mini Dow futures strategy.

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