Futures Trading Strategies

There’s more to futures trading than just rapid analysis and ‘number crunching.’ While day traders in both the forex and futures markets are known for their rapid attention paid to numbers and figures, a great trader tends to have a strategy that goes beyond simply observing data. Many look at events in the markets they’re working in, while others still look at long-term economic data and trends.

But what should you do? While there are hundreds of pre-defined futures trading strategies online, it’s tough to know which is best to suit you. Some stress rapid purchases and sales – operating in a style almost similar to that of a scalper. Others suggest following market data alone, using nothing more than market forces to dictate when it’s good to buy and sell your favorite commodities futures.

These are two strategies of hundreds, each of which tends to be backed up by a huge amount of data and analysis. It’s tempting to believe that due to the data banking up each and every strategy, it’s not a force that can be beaten. However, it’s best to approach each strategy in isolation – one that’s been celebrated by others and ‘proven’ successful may not be such a winner, while another might be.

Beyond this, it’s also important to consider which strategies benefit you. Some futures trading tools require immense mathematical – mostly statistical – ability in order to be properly worked. A range of ‘foolproof’ strategies may indeed be accessible to all, but could require the user to spend days in front of their computer screen at a time, endlessly completing trades at the expense of their lifestyle.

These aren’t what you want to look for. Despite their potential success as trading strategies, they’re tactics that can destroy your quality of life and leave you unable to enjoy the money you’re earning. Instead, it’s best to look at proven, relatively simple, and time-backed futures trading strategies. An ‘easy’ strategy is often worth a lot more than a complex one, particularly for real earnings.

A great way to gain a feel for futures trading is to look at market debriefs and summaries once every week, or even once daily if you’re trading at a frequent pace. This allows you to spot gaps that aren’t being filled effectively – drops in value, commodities futures available with the potential for greater future demand, and other opportunities – and capitalize on them before other people notice.

Other good strategies involve looking at the margins required to complete certain trades, and only every pay attention to those that fit within your trading abilities. This allows traders to limit wasted time and only focus on trades that suit them. By creating targets and searching for contracts that fit within them, you can crop down your list of suitable purchases and hone in on those that suit you.

Two popular commodities futures trading strategies – both reverses of each other – are known as ‘going long’ and ‘shorting.’ The first involves purchasing commodities as the first move, with you selling the futures contracts as they reach your target value. This results in a net gain transaction, with you earning the margin between contract purchase price and the sell value of the contract.

Shorting the market, on the other hand, works on the reverse principle. Rather than capitalizing on an increase in value of the commodity, shorting a contract involves capitalizing on its decline. This requires that you have access to borrowed futures through your brokerage. By borrowing at the top of a contract’s value, selling, and purchasing after its value falls, you can earn a lucrative margin.

It’s worth noting that both of these strategic moves, despite being somewhat basic for an advanced trader, have a great degree of risk associated with them. It’s very possible to sustain heavy losses in the futures markets, regardless of the strategy you use. For this reason, it’s recommended that new futures traders practice by plotting ‘potential’ investments before investing their own money.

In the end, both of these tactics are based around speculation, and both have the potential to fail in a situation where they’re not backed up by a larger macro-level strategy. For this reason, they tend to be used not as strategic moves themselves, but as tactics within a larger strategy. Some traders adapt to how the market is performing on the whole, and short or go long based on their own speculation.

There are several other major futures trading strategies out there, many of which are built around tracking your past trades and looking at patterns in your moves. Many traders track every move as part of a bar chart – this data is often later used to spot small periods when opportunity is abundant in the futures markets, and strategic moves are later made to capitalize on this opportunity.

While the world of futures trading can seem complex and difficult to track at first, it becomes more controllable as your experience grows. Strategies that seem impossible can become realistic, and an ‘unachievable’ margin can quickly become little more than a low-end goal.

This, however, takes time and practice, and not the least a great degree of experience. While futures strategies may promise rapid returns as soon as you begin, it’s unlikely you’ll realize them without a great deal of perseverance. Test, try, and adapt, and you can eventually make any futures trading strategy work in your favor.

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