Best Trading Future Strategies 2022, All Update
Futures are a popular asset among day traders and large institutional investors. Futures contract refers to an agreement between two people. In this agreement, the buyer will promise to buy an asset at a later date and at a certain price. Similarly, the seller will be required to provide the asset at an agreed price.
This is enough to understand the big difference between this asset and common stock, which is affected in real time by news and various other things. This difference is also found in the strategies to be taken, because they are clearly adapted in different ways.
In this article, we will take a look at some of the top strategies for futures trading. But, first, some good basic ideas to think through.
FUTURES MARKET DEFINITION
The futures market is a relatively traditional market that originated in the agricultural sector. The idea is simple. If you are a corn farmer, you can make an agreement with the buyer.
Buyers can promise to buy your corn for $1,000 when you harvest it. This transaction will give you peace of mind as you will have a guaranteed buyer for your product. However, while buyers have the right to buy, they have no obligation to buy corn.
Today, futures markets run the world of commodities. In most cases, commodity traders make deals using the futures market. Some of the other types of futures markets are:
- Stock
- Index
- Interest rate
- Metal
- Forest
- Cattle
In the past, futures contracts were filled in the physical market. This has changed recently and the process is highly automated.
A good example of the futures market is in indices. If you are a keen listener of financial media, you may have heard commentators refer to index futures before the regular session. This happens because the futures market is usually open longer than the regular session.
Another good example of a futures contract is the one offered by the CME Group. These are the same futures contracts that the BITO ETF tracks.
Some of the largest futures exchanges in the United States are the Chicago Board of Trade and the CME.
FUTURES TRADING STRATEGY
There are many futures trading strategies you can use in the market. Some of these strategies are:
- Follow the trend
- Reversal
- Scalping
- Arbitration
- Channel trading strategy
Let's look at each of these strategies briefly. In trend following, you focus on buying or selling an asset that has formed a pattern. In this case, if the stock futures go up, you buy them and make a profit when the price goes up.
Similarly, if the price goes down, you are short and profit when the price drops. You can use trend indicators such as moving averages to identify where the trend will end.
For example, the chart below shows Dow Jones futures with a 25-day moving average. In this case, the bullish trend will continue as long as it is above this MA.
Reversal
Second, you can use a reversal strategy. This is where the asset moves in a bullish or bearish trend and then you enter the trade expecting it to reverse. There are several approaches to this. You can use indicators, candlestick patterns like Doji and engulfing, and chart patterns like wedges and head and shoulders.
Channel
Third, you can trade futures using a channel strategy. This is where you identify a horizontal or diagonal channel and wait for a breakout.
One of the best approaches to this is to use pending orders. This is where you place a combination of buy and sell stops and then protect them using stop losses and take-profits.
Holding Position Until Next Day Is Risky
Also called long futures, holding a position overnight may cause you to lose money. Futures can close at the end of the day at one price and open the next day at a much different price.
Day traders who close their positions every day need not worry about losing money when the market opens in the morning. This method is a very important trading strategy.
Learning Day Trading Takes Longer Time - Learning Curve
It takes time to learn about future trading strategies in day trading. Position traders may only make one trade each week, but day traders often make multiple trades each day.
The number of times you enter into a trade each day makes it harder to learn what you need to know about day trading.
Choose a Liquid Market to Trade
Many day traders like to use the E-mini S&P 500 market for futures trading. Since trading in these markets is conducted electronically, the S&P E-mini has the advantage of offering very easy transactions fast and liquid.
E-mini Nasdaq futures, E-mini Russell futures and Dow futures are some other markets, and each market has different features.
