Futures Day Trading

Futures day trading is a very popular form of trading, I suggest before you start “day trading” you have a clear understanding of what it means to trade futures. In today’s blog we’ll discuss what it means to be a day trader as well as the different types of futures markets you can trade.

Futures day trading involves the buying and selling of a financial instrument within one trading day. What this means is that the day trader does not keep a trade open overnight and in most cases closes out all trades by the end of the trading day. Futures day trading is similar to day trading stocks except that you don’t actually own anything when trading futures. Instead you are speculating on the future direction of the price of what you are trading. In fact, the terms “buy” and “sell” actually only indicate the direction in which you expect the futures prices will go. Day traders study and use techniques associated with technical analysis when futures day trading.

Futures contracts are used when futures day trading and they are contracts between two parties in which you have the right to buy or sell an underlying asset within a particular period of time. The majority of futures contracts don’t actually result in actual physical delivery of a commodity. When day trading futures you can trade commodities, currencies, and indexes in interest rates. We explain these below.

Indexes and Interest rates – one of the most highly traded index futures contracts is the S&P 500 index futures contract. Futures contracts on interest rates are also extremely popular contracts and investors use many timing strategies to trade indexes and interest rates. My favourite futures day trading market is S&P 500 index e minis, if you are new to trading futures, I suggest you start with the Dow Jones index e mini contract, it is a $5 contract so you should be able to trade this with a smaller account.

Commodities – these are physical products whose value is determined mostly by supply and demand. Commodities include items such as Corn, Crude, Gold, Nat Gas and more. They trade in a centralized market and investors attempt to predict whether or not prices will rise or fall by a determined date in time. My favourite futures day trading markets for commodities are Gold, Soy Beans and Crude. Gold and Crude are widely traded and less susceptible to slippage, although it does happen when these markets are volatile. I suggest not to trade Soy Beans if you are a novice trader as this market can be very volatile and it takes some getting used to.

Currency – also known as forex, currency is traded like commodities but on a currency exchange. The price of currency is also speculated as to whether or not the price will rise or fall in the future. Foreign exchange trading, as it is often referred to, is the buying and selling of currencies. These include currencies such as the US dollar, the Japanese yen, or the Euro

If you would like to see how we trade futures on a daily basis in our members area register here for a 14 day guest pass to the GT members area.

Gold

As the chart below shows Gold has clearly broken a long term trend-line. We have been bullish of Gold for two years, we now have a small “swing” short position which we took when it broke out of the box at 1175 yesterday. It could take weeks or even months for the bulls to take control again as they have several months of strong overhead resistance to overcome.

Below is a daily chart for Comex Gold Futures August Contract

Futures Trading for Beginners Part 3

When creating a trading plan for futures, it is important to know which futures market you will trade. I suggest to our novice clients that they keep things simple and select one or two technical setups to implement in the markets and focus on them initially. There are many futures markets to choose from with adequate liquidity for speculation, however when selecting a market it is important to choose one based on your account size, level of experience and investment philosophy. Above all it is important to be flexible; as each futures market can make big moves each year, recently it’s Gold and before that Crude Oil. Being flexible increases a traders probability of catching that big move that can make for a successful year.  

Important Factors When Choosing Markets
History is an important part of successful futures trading. The futures market that has more big trending moves are more likely to have them in the future as well. The following list represents some of the best trending futures markets:

• Currencies – Currency trading is the sector that trends the best. The best currencies to trade are the Euro, the Great British pound and the Japanese Yen. My favourite trending market is currency futures, historically when currencies start a trend they remain in one for a decent period of time.

• Agricultural – Wheat, Corn and Soy Beans being the main markets I trade, I suggest novices start with Corn or Wheat, as Soy Beans can be an extremely volatile market.  

• Energy Futures– Natural gas, heating oil and crude oil futures are all liquid markets to trade. Crude Oil being my favourite as you can choose from two contracts nymex big and mini contracts.
• Metals – Gold, silver and copper are traditionally the most traded commodities. I prefer to trade Gold as it responds more predictably to inter-market correlation, with USD and The S&P 500 Index

For traders with smaller accounts, I suggest trading mini gold futures and currency futures.

Now you have a short list of commodities to trade. The next step is to develop your trading plan. Below I offer some suggestions to get you started
Your rules could include:

 Define your max lose– I appreciate why many traders only focus on “how much they will make” when they first start trading. However knowing which percentage of your capital you are prepared to risk on each individual position will serve you better over time. I suggest 1% to a maximum of 3%.

Set Clear Guidelines – Your trading plan will be more effective, if you are specific and precise. You can always edit it at a later point, however initially select one or two entry setups and one or two futures markets in which you will implement them. This way you will offer yourself the time to learn whether a specific markets suits your personality. Before moving on to try another one

Back Testing – Technology continues to make incredible breakthroughs, you can now successfully test your trading plan. While no two market conditions will ever be the same, it does allow you the chance to reduce unexpected outcomes and understand how your system will perform. Testing will give you the confidence you need to be a successful trader. However never ever load the boat up for one position, if there is a “black swan” day your trading account could be reduced to tears and cobwebs as cash evaporates at an alarming rate, I should know I blew a trading account many years ago and I will never forget it.

 Finally start implement your system with confidence and caution when you’ve identified your target markets, develop, review and test your trading plan. If you would like to see how I manage my personal portfolio on a daily basis in our members area  register here for a 14 day guest pass to the GT members area.

Dealing with performace anxiety

In my last blog I commented that performance anxiety is the most common psychological problem that I encounter among traders. It can manifest  in many different forms; during trading slumps, when traders raise their position size and increase risk, when the need for cash adds too much pressure to individual positions. Bottom line performance anxiety interferes with peak performance.
Below are some suggestions for dissolving performance anxiety

Self-hypnosisWhen a trader is responding to a trading situation with any form of anxiety, I’ll ask the trader to close his eyes, breathe deeply and slowly from their stomach, then visually create their own relaxation spot, this can be a room in their house or a beautiful location that has a special meaning to them. Wherever the location is, I asked them to make sure it relaxes them now. I then ask them to raise their right hand above their head and slowly let it drop as they become more relaxed. Focusing on their breathing and the calmness of their imagined environment. I’ll suggest they add the sound of tranquil music or water lapping onto a beach. Noticing which part of their body feels most relaxed. The exercise ends when their hand falls back to their side and they are now totally relaxed and ready to focus on trading in a calm and alert manner.  This exercise should last approximately 15 minutes.

The exercise is a self-hypnosis technique, the traders offer themselves suggestions during the time that their hand is moving down to their side. For example, they might suggest to themselves internally that, as their hand moves down, they will start to accept a recent loss and they are now willing to put it behind them. To achieve best results, I suggest they enter a highly focused and relaxed state prior to the self-suggestions and they perform the exercise thoroughly when required. My clients tell me, the more they practise this, the easier it becomes to enter the focused state of relaxation and invoke their own suggestions. In time it’s possible to reach a highly relaxed state by simply taking a few deep breaths and raising their hand. Repetition is essential to performance mastery.

Reprogramming Anxiety Through feedback  This technique can be applied to a variety of emotional trading situations that affect performance. For the last 4 years, I’ve been using a heart rate monitor, which offers us a quality visual feedback, which helps traders to monitor their progress and visually determine whether or not they’re in a “peak trading state“. The first step of feedback training, I share a technique that assists my clients to enter a peak zone. Similar to self-hypnosis, I’ll suggest they regulate their breathing and narrow their cognitive focus. This, technique alone, is an extremely useful skill that can be a preventive measure regarding performance anxiety and stress. When the trader has mastered this, I will then add a second component to the exercise.

I ask the trader to vividly visualize a mildly stress producing trading situation while hooked up to the heart monitor. When the trader has repeatedly visualised this low-anxiety situation and can sustain a “peak state” which keeps their heart rate down to a low level, I will then move on to a higher-level anxiety inducing scenario. It is much easier to imagine a variation of the same anxiety scenario as above. Finally we’ll move to the highest anxiety-producing situation, repeating each scenario several times incorporating the different variations, until the trader can remain in a calm focused state even in the most testing of situations. The advantage of this method is that it assists the trader to do what they need, to do to get their minds and bodies under control and then move towards a peak state. This awareness will then be carried forward into real time trading. This can occur because all the trader is required to do is focus attention and regulate breathing during stressful or anxious periods during the trading day.

The most important aspect to remember is, both methods centre around shifting your state physically, emotionally, and cognitively as a way of dealing with performance pressure. By enhancing our control over our states, we can start to feel and think in ways that are incompatible with performance anxiety. My experience is that any trader can learn this skill, practise may not make perfect but it will certainly assist you to deal with performance anxiety. You decide which level of self-mastery you achieve.