professional trading strategies 2019 version

Futures are a favorite trading vehicle that derives its price from the underlying commercial enterprise instrument.

If you want to get your feet perspiring with futures contracts and get ahead a no-hit futures trader, you'll need to take up a fountainhead-defined trading strategy that helps you stay fresh your risk under control and fend off slushy trading.

In this article, we've prepared our favourite futures trading strategies with an account of to each one strategy. This includes entrance and exit points and things you deprivation to avoid when trading the futures exchange.

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What are Futures?

Futures are democratic financial contracts that obligate both parties to transact an asset at a pre-specified price and at a pre-determined future date. Unlike options where the buyer has the right but not an obligation to carry through his option, traders World Health Organization barter with futures must oblige by the footing of the futures contract by the time of its expiration, careless of the flow market price.

Speculators use futures contracts to theorise on the market and make a profit

The price of a futures compact depends on the underlying asset, its afoot market price, and the expiration date. Touristy underlying assets for futures contracts include physical commodities, so much as oil, gold, copper, and natural gas, or financial instruments so much A currencies and stocks.

Futures are standardised contracts, meaning that the amount of the underlying asset is e'er precisely stated. For representative, a futures contract on the British pound has a size of exactly GBP 62,500, a contract happening natural gas 10,000 MMBtu (million Island thermal units), on Rock oil 1,000 US barrels, and on gold 100 fine Troy ounces.

Futures contracts are most usually put-upon for hedging and speculation purposes. For good example, a farmer may want to protect against decreasing corn prices by buying a futures contract on corn with a predetermined price and carrying out date stamp. This way, the farmer knows in advance the price at which helium can deal his product.

Speculators exercise futures contracts to meditate on the market and make a profit on down Beaver State rising prices of the underlying instrument. Most futures contracts are not held until their implementation date As they tail end be regularly listed direct an exchange. The Price of a futures narrow depends on the underway market value of the underlying instrument.

Read: 22 Day Trading Strategies for Beginners

#1 The Tieback Scheme

The tieback strategy is a powerful futures trading strategy that is supported price pullbacks. A pullback occurs during trending markets when the price breaks above or under a support/resistance steady, reverses and retests that broken level again.

During uptrends, the price breaks above a well-foreign resistance level,dannbsp;reverses and retests the resistance tear down. Formerly the retest is complete, a trader would enter with a unsound lieu in the direction of the underlying uptrend.

During downtrends, the cost breaks below a well-established brook level, reverses and retests the hold up level over again. This is a pullback, and a trader would enter with a short position in the counselling of the underlying downtrend.

The following chart shows two pullbacks (points 3 and 4) to a previously disorganized support point which now acts as a resistance.

A chart showing broken support

Pullbacks form when market participants start to get profits, pushing the price in the opposite commission of the initial break. Market participants who uncomprehensible out the initial cost-move are wait for the Mary Leontyne Pric to return to the broken support/resistance level in parliamentary procedure to recruit at a more favourable price, pushing the price up again.

Pullbacks need reward of an important phenomenon in technical analysis. When an eventful support operating theatre resistance level breaks, that level changes its nature and becomes a resistance or abide level, severally.

A broken support level becomes a resistance level, and a broken ohmic resistanc level becomes a support level. This is particularly legitimate on higher timeframes, such atomic number 3 the daily, although IT privy likewise be observed on shorter-term timeframes, such as the 30-transactions or 1-hr ones.

When trading pullbacks, traders should put back stop-loss orders just below the retested support level (antecedently resistance) during uptrends, and objective for the recent highs every bit their gain target.

Similarly, stop-losses should embody placed above the retested resistance level (previously support) during a downtrend, with net profit targets set at Holocene epoch lows.

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#2 Trading the Range

Trading the range refers to trading the bounce off probative support and resistance levels in a chart. Certain markets like to trend, such as stocks, while others like currencies like to trade in a range.

Most market participants are still humans who have emotions and memories. When the market has difficulties to break preceding a certain price index, market participants will refer to that level as a resistance level. When the price reaches the same level again, some traders will come out to take profits and others will open short positions in the market, some of which will growth selling pressure on the financial instrument and likely send the price down.

On the other hand, when the Price has difficulties to bankrupt downstairs a convinced story and reaches that same level again, market participants who have been already shorting the grocery might start fetching profits while other will start purchasing at those lower prices, both of which testament gain buying pressure along the financial instrument and likely send the price up. Those levels are referred to as hold up levels.

The following chart shows how the price unremarkably behaves around immodest support and electric resistance levels.

Support and resistance levels

When trading the range, the first thing you need to care about is whether the market is actually trading in a range (sideways). If there's an absence of high highs operating theatre lower lows in the price, both of which are signs of a trending commercialize, then the current market environment is apt a ranging market.

Alternatively, you could use trend-following technical indicators such A the ADX indicator. An ADX value below 25 signals that the market is not in a sheer.

Place your plosive-loss levels just above an important resistance level if you'Re shorting the market, operating theatre just below an important support storey if you'ray purchasing the grocery.

You wear't want to stay inside a craft if the traded support/resistance level gets broken, so place the stop-loss level approach the level but add u some room to account for fake breakouts, unpredictability, and market noise. Profit targets should be placed about recent highs/lows, S/R zones or different evidentiary specialised levels.

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#3 Prisonbreak Trading

One of the most popular approaches in day trading, breakout trading has a huge following among futures traders. As its name suggests, jailbreak trading aims to catch the market volatility that occurs when the price is breaking out of chart patterns, channels, trendlines, horizontal S/R levels, and other technical levels.

Popular chart patterns for trading breakouts include the head and shoulders pattern (trading the neckline jailbreak), rectangle, pennant and Triangulum patterns that often signal a continuation of the underlying trend, and double tops and bottoms.

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Just after a breakout occurs, the market usually experiences accrued volatility A many pending orders become dead. Gaolbreak traders try to bring reward of that volatility rise away taking positions in the centering of the breakout.

This graph shows the direction of the breakout moving to the upside

The chart above shows how to trade a symmetrical trigon prison-breaking with a consecutive pullback. Line zero. 1 shows a potential entryway-level, with pedigree nobelium. 3 acting as a profits prey.

Pending orders are much used by prison-breaking twenty-four hour period traders to catch a breakout trade. Unfinished orders such as buy stops and sell stops become commercialise orders when the price reaches the pre-specified price-level off. This direction, traders don't have to wait for the actual breakout to go on in order to catch the consecutive volatility.

Stop-loss levels are usually placed just above (for short positions) or below (for bimestrial positions) the subject field level off where the Price broke out. Markets often form pullbacks to the broken technical level which allows traders to add to their open positions and other traders to join the commercialise.

Take-profit targets depend on the type of breakout. For instance, a manoeuver and shoulders pattern projects a profit objective that is up to the height of the rule, rhythmical from the neckline to the top of the head which is then projecting from the breakout point.

Triangle and rectangle patterns have a profit place that is equal to the height of those patterns measured from their base.

Instead, traders can besides set other profit targets supported recent swing highs and lows or shorter-term support and resistance levels.

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#4 First harmonic Trading Strategy

Spell virtually of the futures trading strategies explained therein article are technical in their nature, you involve to exist aware that most flooding-excitability price-moves are a byproduct of changes in the underlying tool's fundamentals. Fundamental principle initiate and reversion trends and break important subscribe and underground levels.

Professional futures traders need to be up-to-go out on fundamental developments of the listed financial cat's-paw. As a pattern of thumb, fundamental traders imitative 80% of their trading decisions on basic principle and 20% happening technicals.

One of the important drawbacks of fundamental analytic thinking is that it doesn't provide exact price-levels to trade on, and that's where technical analysis comes into play. Fundamentals are victimised to determine whether to go foresightful or short, and technicals to set lucre targets and stop-loss levels.

An easy nonetheless effective fundamental trading strategy is to follow micro-fundamental releases. Check the curve for the last three reports. For example, if you're trading futures happening currencies, and so economic increase reports, splashines reports, and labour market data can have a tremendous bear on on exchange rates.

Central banks follow these reports to adjust their monetary policy. When economic growth is slowing down, inflation doesn't pick awake and unemployment rates are acclivitous, central banks usually cut rates to stimulate economic activity.

The diametric is true when economic growth is high, inflation reports are near the central bank's pompousness object and labour markets are strong – that's when focal banks normally hike stake rates to prevent the economy from overheating. Rate cuts cause the home-style currency to accrue, while rate hikes lead to currency appreciations.

By following these reports and their last three releases, traders can bring fort an idea of where the central bank's policy is heading. Is on that point a higher probability for a grade cut or rate wage increase? Get your trading charge from fundamentals, and employ technicals to fine-tune entry and exit targets.

The same scheme can be practical to other markets as well, such as the futures on stocks, commodities, and metals.

#5 Buyer and Vendor Interest

Traders utilise the data of buyer and seller pursuit to determine whether to buy or sell a futures contract. Emptor and seller interest is determined by the Depth of Market (DoM) windowpane, which shows the number of open buy and sell orders for a futures cut at a number of Leontyne Price levels.

The Depth of Market shows the liquidity for the underlying security – a higher number of securities industry orders at to each one price way high liquidity, and vice versa.

Depth of market chart

Expressed: A Depth of Market windowpane in MetaTrader 5. Source: https://www.metatrader5.com/i/help/terminal/en/dom_stops_move.png

Extraordinary brokers cite to the Depth of Grocery store as the Order paper, Eastern Samoa it shows the number of pending orders for the underlying security or currency. These lists are updated in real-time to reflect the modern trading activity in the market.

Large trading orders won't affect the price of a extremely-liquid security, so much as Amazon, to a whopping extent. Still, if the depth of the market and liquidity is low, even fine trading orders can have a significant impact on the price.

Traders stool create right trading strategies built more or less the Depth of Market or Order Book.

For example, if stock X presently trades at $50, and the DoM of the stock shows that there are 100 buy up orders at $50.10, 200 at $50.50, 400 at $50.80 and 250 at $51.00, patc the sell-side shows 40 orders at $49.90, 60 orders at $49.70 and 150 orders at $49.60, a bargainer could amount to the conclusion that there's overall a higher purchasing interest than selling interest in the stock.

Stocks and other financial instruments tend to gravitate toward those price-levels that have the largest number of orders.

Read: What are Key Chart Levels? (You said it to Swop Them)

#6 Trend-Following

Some of the best futures trading strategies are trend-following strategies. They (mostly) work, have a proven track record and are quite a easy to survey.

So, what is a tendency-following strategy?

As its name suggests, these strategies aim to record in the direction of the implicit vogue. If the style is up, a vogue-following strategy would only seek fit long positions. Similarly, if the slue is fallen, a cu-following strategy would only look for potential close positions.

You may have heard the saying "purchase low, sell high" and "the trend is your friend." But, how rear a trader know at what "low" to bribe and what "high" is high sufficient?

To answer that central question, let's quickly cover how trends form. In an uptrend, the price makes higher highs and higher lows with apiece high low representing a counter-trend move. Those counter-movement moves are price corrections that form as the lead of profit-taking activities, or when sellers get-go to pushful an overstretched heavenward-move lower.

The optimal time to buy during an uptrend is at the high low, i.e. the bottom of the price correction. This is exactly the point where the underlying uptrend should resume. The same is faithful for downtrends, merely that you would look for the tops of lower highs to enter with a sell position.

Take a look into at the following chart. The tops of the depress highs (LHs) are utilised to enter with a improvident position, piece the lows of the high lows (HLs) are used to enter with a buy position. The areas in green shadows represent price corrections during a trending market.

Example of a market correction after a formed bottom

Reported to the Dow theory, a cost chastening reaches on modal 50% of the initial impulse be active. In terms of Fibonacci levels, look for retracements between 38.2% and 61.8%.

#7 Counter-Trend Trading

Counter-trend trading refers to taking positions in the opposite direction of the underlying trend. For example, a counter-trend trader would look for sell opportunities during uptrends and buy opportunities during downtrends.

Counter-veer traders try to take advantage of the cost fudge factor that succeeds each impulse go off and place their profit targets at around 50% of the impulse move or at an important Fibonacci level. Negative-trend trading strategies are ordinarily riskier than the early strategies explained therein article and should only be used by experienced traders.

Futures Trading Strategies to Avoid

Piece there's no doubt that having an effective trading strategy give the axe significantly improve your trading performance, there are also certain points and strategies that you should avoid. Here're the most epoch-making ones:

Trading highly illiquid markets – The liquidity of the commercialise depends on the number of buyers and sellers at each price level. A extremely-liquid financial instrument, such as the EUR/USD pair OR stocks of valuable companies like Apple, have a multitude of market participants ready to jump off into the market at almost any price-equal around the current market price. This reduces the volatility of the security department or currency pair, but also the connected trading risks. Illiquid financial instruments can fluctuate much even on small trading orders, which can quickly lead to large losses.
Scalping strategies – Scalping is a popular short-terminus trading style that tries to take advantage of very small price movements along very breakable-condition timeframes. Scalping is meteoric-paced and exciting and attracts many traders, especially those World Health Organization are just getting started with trading. Unfortunately, those traders often finish up with heavy losses. To be consistently profitable with scalping, you'll need experience, discipline, and nerves of steel. Introductory learn how to craft profitably with longer-term trading styles, such As swing trading and day trading, earlier acquiring your feet wet with scalping.
Property trades overnight / over the weekend – For each one time you determine you hold a trade wind overnight or concluded the weekend, you can be exposed to unfavourable market events that terminate lead to losses. This is especially true when retention trades over the weekend.

E.g.

A Forex trader who holds an Aussie trade wind agape over the weekend Crataegus oxycantha get seriously hit by a Trump squeeze on US-Red China trade relations (and we know how much he likes to twirp over the weekend.) To be happening the safe side, close your trades ahead of the weekend, except if you'Re using a long-term trading approach and have good run a risk management skills.

Final Lyric

Futures trading can be a rattling exciting and lucrative enterprise if you sustain a distinct trading strategy and risk management.

If you're a founding father to the commercialise, then give the tieback strategy a try. It's a pop trading approach with a huge succeeding base among retail futures traders. We also like trend-following strategies and trading in the management of the trend.

Whichever trading strategy you choose, bear in mind to trade liquid markets and to close your positions overnight (if you'Ra a day trader) and over the weekend (if you wear't want return on additional risk.)

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