The short answer
An ES or MES futures signal tells you which contract and which direction to trade, where the trade starts, where it is proven wrong (the stop), and where it aims to take profit (the target or targets). Everything else, including how many contracts to trade, is your decision. The dollar risk of a signal comes from its stop distance and the contract's tick value, and you can work it out in one line of arithmetic.
The five parts of a signal
1. The contract. The signal names the market: ES (E-mini S&P 500) or MES (Micro E-mini S&P 500). They track the same index. ES pays $50 per index point, MES pays $5 per point. One tick is 0.25 points, so one ES tick is $12.50 and one MES tick is $1.25 (CME Group contract specifications).
2. The direction. Long means the trade profits if price rises. Short means it profits if price falls. Both are normal on futures, and a signal that only ever pointed one way would tell you something about the strategy behind it.
3. The entry. This is the price, or the moment, the trade starts. In an automated setup the entry is an order your broker fills. In a manual one you place it yourself, and the price you get can differ from the price in the signal. That gap is called slippage.
4. The stop. This is the level that says the idea was wrong. If price reaches it, the trade closes at a loss. The Quanntick Day Trader uses a 0.50% stop and the Trend Follower uses a 0.75% trailing stop. A trailing stop moves in your favour as the trade does, and never moves back.
5. The target. This is where the trade aims to take profit. A trade can have one target or several, and what the stop does after the first target is a separate decision (a topic for a later article).
Worked example: what the stop costs in dollars
This is an illustration with round numbers, not a trade we took. Suppose the S&P 500 futures price is 6,000.00 and a long signal arrives with a 0.50% stop.
- Stop distance: 0.50% of 6,000 = 30 points. - In ticks: 30 points divided by 0.25 = 120 ticks. - On MES: 120 ticks x $1.25 = $150 per contract. - On ES: 120 ticks x $12.50 = $1,500 per contract.
Same signal, same stop, ten times the dollars. If you trade 3 MES, your risk at the stop is 3 x $150 = $450, before commissions and any slippage. If your account is $10,000, that is 4.5% of the account on one trade, which many traders find too large. One MES contract is $150, or 1.5% of the same account.
The point of the arithmetic is that the signal does not decide this for you. The same alert can be reasonable at one MES contract and reckless at one ES contract.
What a signal does not contain
A signal does not contain your position size, a promise that the stop will fill at its level, or any information about your account. It also cannot tell you when you should skip a signal because a scheduled news release is due. You build those habits yourself.
A stop is also not a perfect floor. It turns into a market order when touched. If price jumps through it, for example at the open after a gap or around a major data release, you can be filled beyond the level. That is why traders size so that a worse-than-planned fill is survivable, not just the planned one.
How to read your first signal
1. Find the contract and direction. 2. Write down the stop distance in points. 3. Multiply by the point value ($5 for MES, $50 for ES) to get dollars per contract. 4. Choose a size so that number, times your contracts, is an amount you are willing to lose on a single trade. 5. Only then decide whether to act.
If you want to practise these five steps before real money is involved, Quanntick's paper trading runs on real-time market data with simulated money, so you can see signals arrive, size them and watch them play out.