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Day Trading Futures |
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What are futures ? Futures are all about future prices. People who trade futures essentially trade agreements about how much they will buy or sell something for at a specific date in the future - usually the nearby future, within a few months or less. These agreements are contracts that also specify the quantity and other details of the commodity being traded. A futures contract is a legally binding agreement between two parties to buy or sell in the future, on a designated exchange, a specific quantity of a commodity at a specific price. The buyer and seller of a futures contract agree now on a price for a product to be delivered or paid for at a set time in the future, known as the "settlement date." Although actual delivery of the commodity can take place in fulfillment of the contract, most futures contracts are actually closed out or "offset" prior to delivery. Futures contracts are traded through an auction-like process, with all bids and offers on each contract made public. Through this, a prevailing market price is reached for each contract, based primarily on the laws of supply and demand. You might be surprised to know that the futures markets are rarely used to actually buy or sell the physical commodity or financial instrument being traded; they're used for price estimation, risk management, and for some people, investment and profit. How do I go about trading futures ? When first considering trading futures, it is important to gain a thorough knowledge of the market. Information about futures contracts, the clearing house, margin calls, and the nature of the futures market are all readily available from all Futures Exchanges and certified futures brokers. Attending seminars, reading books and keeping up to date with the financial market is important. The process of actually learning how to trade futures contracts is more time consuming. It involves being aware of ones own strengths and weaknesses, and then developing a trading strategy to best suit the individual. To be successful in futures trading, one needs a planned, disciplined approach. It is important to know your entry and exit levels before placing orders, and hence your profit and loss goals. Having the confidence and discipline to stick to these levels is an integral part of trading. Successful futures traders always acknowledge the importance of psychology in their trading. Traders must be disciplined and remain emotionally detached from the market. Futures contracts must be executed on or subject to the rules of a commodity exchange. You can either trade futures through your broker or Electronic Trading System. (Only applicable for certain futures market ). Our daily life involves buying and selling of commodities and they fluctuate in price. These price fluctuations are how we benefit and profit. In stock market, you have to buy the stock at a low price and sell it at a high price to make a profit. In the futures market, you can sell high and buy low, i.e. you can short the market. (For example: assume gold prices are too high, we can sell gold at the high price and buy it back when it reaches a lower price, thereby making a profit.) DAY TRADING The world of futures trading has become increasingly dominated by short term speculation. Since the early 1970's, virtually all futures markets have become increasingly volatile, and the time window of market moves has steadily narrowed. Nowadays, large intraday price swings provide a consistent source of opportunities for an increasingly popular form of trading known as day trading. In addition to the increase in market volatility, a large decrease in commission costs in recent years and significant advances in computer technology have become powerful driving forces behind the growth of day trading. Commission cost has historically been the single largest overhead factor in futures trading. With the advent of negotiated brokerage commissions and discount brokerage service, it is now possible for traders who do not seek the advice and input of a "full service" broker to pay greatly reduced commissions, thereby following for more active trading as well as trading for smaller price moves. In addition to greatly reduced commissions, the combination of advanced computer hardware, charting software, and a wide array of “real time” market quotation services accessible by computer, all affordable to even the novice trader, has enhanced public participation in an area which was historically the exclusive domain of professional off the-floor traders and on the floor pit brokers. The increased pool of short term and day traders has increased market liquidity which, in turn, has facilitated short term and day trading. What is Day Trading? Day trading is the process of making trades during the course of the trading day with the intention of making short-term profits. True day traders will not hold positions to the next trading sessions regardless of how they have fared during the day. This means that a loss is a loss and a profit is a profit and that all scores are settled by the end of the trading session win, lose, or draw. Day trades may be entered at any time during the day, but they must be closed out by the end of the same day. While it is true that leaving a trade open for as long as possible increases the opportunities for profits, it can also result in greater losses. What is critical in day trading is not the length of time the trade remains open but, rather, the range of prices traveled during the period the markets are open from opening trade to closing trade. Successful day trading requires, amount many other conditions, a wide trading range. The task of the day trader is to forecast price movements within the confines of one trading day using technical analysis tools. Many opportunities to profit arise in the course of every trading day, but if, and only if, you know what to look for. This is why the proper training is essential to anyone wishing to trade in this manner. Why Day Trade? Given the volatile market environment described above, day trading offers several advantages over position (i.e. longer term) trading. They include the following: 1. Day traders get many opportunities each day. 2. You don't have overnight risk in day trading, so there is little or no margin required even in big markets. 3. High-probability entry systems, which most people want, work with short-term trading. 4. With good money management technique, the risk of losing huge amount of money is well controlled by using tight stop loss. 5. There's always another opportunity to make money. Keys to Successful Trading Futures trading requires management of the emotional states. Emotional imbalance impairs the ability to make congruent decisions. The most optimal state is one of complete emotional detachment, to remain calm and to act in accordance with your strategy. That includes negative as much as positive emotions - the key word is to stay "cool". Following are the 20 most important points I believe a futures trader should observe in his or her trading strategy….
2.
KNOW YOUR PURPOSE 3.
TRADE ONLY WHAT YOU CAN AFFORD TO LOSE 4.
MAINTAIN MENTAL CLARITY 5.
WALK BEFORE YOU CAN RUN 6.
DON'T PLACE ALL YOUR EQUITY IN ANY SINGLE POSITION 7.
ACCEPT THAT THE MARKET IS ALWAYS RIGHT 8.
TRADE WITH DEFINITE GOALS IN MIND 9.
STICK TO YOUR PLAN 10.
DON'T TRADE TOO MANY MARKETS 11.
TECHNICAL ANALYSIS 12.
DON'T FOLLOW THE CROWD 13.
ADMIT THAT YOU ARE WRONG 14.
LET PROFITS RUN UNTIL YOU HAVE A REASON TO CASH IN 15.
OVER-REACTIONS 16.
BE CAREFUL WHEN PLACING "STOP LOSS" ORDERS 17.
WATCH CAREFULLY FOR MARKET DIVERGENCE 18.
PICKING HIGHS AND LOWS 19.
KEEP FRESH 20.
KEEP HEALTHY
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