The national average salary for day traders is over $86,500 a year; if you play your cards right, you can have a lucrative career. Of course, the amount you earn depends on who you work for and how smart you are to the markets too.
One way people make their money work for them is with futures trading. This is a type of contract where the parties involved need to sell the specific asset at a predetermined price and date.
Interested in doing this type of trading? Then read on to see some effective futures trading strategies.
Table of Contents
Trend Following
One great trading strategy is to keep your ear to the ground. Look for futures contracts that show clear upward or downward movements. You should then enter positions in the direction of the trend.
It’s beneficial to have technical analysis tools like moving averages, trendlines, and momentum indicators. This can take a lot of guesswork out and automate the trend-following process.
Breakout Trading
Breakout treading is where you try to profit from significant price moments that happen when a futures contract breaks through a support or resistance level.
To do this, you should monitor price consolidation patterns. Wait for a breakout above resistance or below support levels before you put money in.
Do note that breakout trading requires careful risk management, as it can sometimes lead to false moves or whipsaws (when stock prices suddenly switch directions).
Mean Reversion
With mean reversion, you’ll assume that prices will eventually go back to their average or mean value after deviating from it. Here, you’ll have to identify overbought or oversold conditions in a futures contract. Then, take positions in the opposite direction of the current trend.
Useful technical indicators here include oscillators, such as RSI or Stochastic. These can help you identify potential reversal points.
Spread Trading
Spread trading involves taking positions in two related futures contracts at the same time so you can profit from price differentials between them. It can be a little more difficult to manage, so it’s not recommended for beginners.
You can employ strategies such as calendar or inter-commodity spreads. The former is buying and selling contracts with different delivery months, while the latter is buying and selling contracts of related but different commodities.
Scalping
You’ve probably heard of ticket scalping; futures scalping is a short-term strategy where you profit from small price movements. You’ll execute many trades in a short period, taking advantage of bid-ask spreads and liquidity.
If you’re a more fast-paced person, this scalping’s optimal for you. You’ll have to make quick decisions and do efficient order execution alongside careful monitoring of market conditions.
Options Strategies
You may run into the dilemma of futures vs options. Options can be used in futures trading to hedge positions or generate speculative trades. Options here include:
- Straddles
- Strangles
- Spreads
These can all help you take advantage of volatility or price movements. See this page for trading videos if you need more help.
Employ These Futures Trading Strategies
As you can see, there are several futures trading strategies available, and these don’t even cover all of them.
Remember that none of these are guaranteed to be profitable. So you’ll need to combine your strategies with good timing, risk management, and thorough market analyses.
For more trading tips, keep exploring our blog page.
