Modern futures markets provide traders and investors with a variety of trading opportunities. Regardless of which commodity you may have interest in, modern markets provide opportunities nearly around the clock during the trading week. Most markets not only have futures available to trade, but also have options listed for trade on those futures.
Day trading of futures markets has seen some major changes in the last decade. As electronic trading became increasingly available and reliable, major exchanges eventually made the difficult decision to close their trading floors. The closure of those trading floors left many previously successful day traders out in the dark, many of them having been unsuccessful when trying their hand at electronic trading. Pit trading and electronic trading are two very different endeavors, indeed, and electronic trading may have leveled the playing field enough to force former pit traders out of business.
Day trading today takes place throughout the day session as well as at night. Thousands of day traders implement their chosen strategies throughout the trading week and the popularity of electronic trading could continue to increase in the years ahead. There are hundreds, perhaps thousands, of available day trading strategies to choose from. The type of methodology used by a trader will likely depend on the markets traded, the amount of capital used, risk tolerance and other factors. The brief guide below will highlight some of the most popular strategies, however, and may provide some insight as to what traders may be looking for in opportunities.
Many traders utilize moving averages to make trading decisions. The averages can vary significantly. A day trader may use shorter averages, such as the 9 and 18-period averages, while a long-term investor may choose to use the 50 and 200-day moving averages. For day trading, a simple strategy may be to only look at going long the market when the 9-period moving average is above the 18-period moving average. The opposite could be said for looking at short positions, where the trader only looks at getting short when the 9 is below the 18.
Relative Strength Index
The RSI, or Relative Strength Index, measures market momentum. This indicator may be used by day traders to look for possible market entries and exits by identifying potentially oversold and overbought conditions in the market. The range of the RSI is 0 to 100, with a reading of above 70 and below 30 being considered extreme and significant.
A pivot point is important in day trading as it may determine the day's overall direction. Essentially, if the market moves up through the pivot point, day traders may look to get long the market. Conversely, if the market declines below the pivot point, day traders may only look at shorts.
Pivot points can also be used as an area of support or resistance. A day trader could sell a test of the pivot point from below and could look to buy a decline to the pivot point from above.
Volume Weighted Average Price
The VWAP, or Volume Weighted Average Price indicator, shows traders the price level at which most of the volume is being executed at. Volume can be a huge market catalyst, and knowing where the larger market participants are trading can be very useful information. Some day traders may buy a pullback to the VWAP during an uptrend or sell a run to it in a downtrend. The indicator often acts as a significant area of support and resistance and markets may turn in direction once they reach this level.
Many day traders will use chart patterns for trade signals. Although some may argue that patterns are more useful on larger time frames, specific patterns seen during the day may also be acted upon. These may include such patterns as the head and shoulders pattern, double tops and bottoms, rounded tops and bottoms and many more. Chart patterns can be very useful for day traders. Patterns not only lay out the specific entry point but can also be very helpful in deciding on an exit point whether the trade is profitable or not.
Day traders can use a wide variety of exit signals when looking to take profits or protect capital. Stop loss orders may be set according to chart patterns, moving averages, pivot points and more. Profit targets may also be set using the same trading indicators. Day traders may also, however, look to place a trailing stop on a winning trade to extract as much profit as possible.
How a day trader looks to exit winning or losing positions depends on their style, market volatility and risk tolerance.
Do Futures Trade 24 Hours?
Futures do not trade for 24 hours per day, although they have gotten very close to that in recent years. Many Chicago Mercantile Exchange markets, for example, close for an hour after the close of the day session. They are then reopened at 5pm CST for the night session, which flows straight into the day session the following day.
Can Futures Trading Make you Rich?
The answer to this often-asked question is yes, it potentially can. The vast majority of people that trade futures, however, end up losing money. For traders that can handle the mental aspect of day trading, however, the potential rewards are astounding. A single winning day trade, for example, could provide a yield of several thousand percent on capital. Done just once or even a few times per day on a consistent basis can lead to significant gains and tremendous wealth. The average person out there, however, should only consider day trading with risk capital, or money that they can afford to lose.
Which Futures Trading Platform is Best?
There is a variety of futures trading platforms available today and day traders can choose any platform that is supported by their clearing firm. Platforms may be provided by the clearing firm itself, and labeled as such, or may be available to everyone. The Think or Swim platform, produced by TD Ameritrade, may be used by any trader who clears through a firm that supports it. Most clearing firms will offer day traders several options on platforms, based on their trading volumes and needs.
Is One Day Trading Signal Better Than the Rest?
When it comes to day trading signals, one size does not fit all. Soke traders mau prefer and perform better using a moving average system while others may prefer and perform well using pivot points. The best signal is the signal that a day trader is comfortable with. That means that they must have a thorough understanding of how the signal operates, the best conditions in which to use the signal and how to manage risk when using the signal.
The most important issue for successful traders, whether long-term or day traders, is risk management. Without the proper plans for managing market risk, a trader is nearly certain to fail.
Risk management can be accomplished in a variety of ways. These may include stop loss orders, trailing stop orders and more. Whatever risk management methodologies a day trader chooses to employ will likely be decided after a careful review of market volatility, risk tolerance, trading objectives and other factors. Traders may, for example, be forced to use wider stops and risk more on a per-trade basis in a market with more volatility compared to a market that is more quiet.
Day Trading and Emotions
Although trading signals are very important, the management of risk and emotion is arguably even more important. To be successful in day trading, you have to be able to regularly go against human nature. This means that A day trader must be able to fight off the urge to take profits quickly, while learning to cut losing trades immediately. Losing trades should not be viewed as a negative but rather a positive. Successful day traders also avoid chasing the markets or trying to make back losses too quickly. For the untrained and undisciplined trader, failure to master the emotional aspects of day trading will lead to financial ruin.
Successful day trading requires a mix of skills as well as the proper mindset. These traders are able to maintain an emotional flatline that always has them looking at the markets objectively, allowing them to make better decisions. Although the majority of day traders will fail, the potential rewards for the successful are significant. Day trading not only can provide substantial financial benefits but may also provide a large degree of freedom.
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