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.
What is performance anxiety?
There isn’t a trader I’ve consulted, whether they’re part-time retail or professionals trading in investment banks: that haven’t been affected by performance anxiety.
Performance anxiety afflicts even the most successful operators. It occurs when awareness of the performance and the outcome of the performance disrupts the art of performing at a higher level. The most successful investors will have developed their skills to the point of automaticity. This applies even more to scalpers or intra-day traders, where high speed execution of skills is paramount to consistent success. If a trader becomes self-aware and focuses to much attention on the outcome of the trade, instead of focusing performance , then focus is lost and the result is a reduction of performance levels.
Have you ever seen a technically gifted sports person miss a simple shot? Their focus at the point of the miss was probably on the importance of it and not on the execution. In the financial world, many traders focus on the future results of a trade or on the importance of it needing to be a winner, especially true during a drawdown period. This can lead to missed opportunities because they couldn’t focus on pulling the trigger and taking the play. Being overly aware of risk interferes with the function of making money.
So why does performance anxiety occur? It could be an isolated poor performance or a string of poor performances, which can lead the trader to think, they’re in a slump, they then try to over compensate and force things, which only makes the situation worse. A change in circumstances can also generate performance anxiety. Starting a new hedge fund or trading for the 1st time with your own capital and understandably wanting to impress investors or loved ones; increasing position size and all of a sudden becoming aware of increased risk. Any of the prior can shift the mindset of the trader. This can affect the traders mood, which shifts their focus onto things which in the short term are unimportant to their success.
Something that is commonly missed and is a important aspect of performance anxiety is something known as secondary anxiety. This occurs when the trader becomes aware of being anxious about being anxious! This is one of the main forces behind panic disorder, it also frequently plays an important role in sustaining performance anxiety. A trader can start to be scared by the normal fight-or-flight responses generated by activities that involve uncertainty, risk being the major uncertainty traders face on a daily basis. If these responses are perceived as threatening, they can generate more anxiety, which leads to the situation becoming even more threatening. I have worked with many traders where, performance anxiety is the result of such a spiral, once it starts and chained effect thinking (one bad thought leads to another) kicks in, the result can be prolonged anxiety.
In my next blog, I’ll offer some techniques to deal with performance anxiety, so you can return to an enhance trading state.
Futures Trading for Beginners Part 2
None of us like to lose money and like me I’m sure it you don’t want to lose it through poor preparation and lack of planning? Most people feel the same way so starting to trade futures can be a little nerve wracking to start with. The good news is that you can learn without risking any of your capital, you can paper trading futures. The incredible advances in the Internet of the last 10 years, means most reputable brokers offer a simulated trading platform., which allow you to paper trade futures, free way to simulate futures trading without the financial risk. Before we go deeper into paper trading futures, let’s talk about futures trading in general.
Futures trading is different from investing in the stock market or bonds since you don’t actually own anything; in futures trading, you are speculating on the future direction of the price in the commodity you are trading. This is like a bet on future price direction. The terms “buy” and “sell” merely indicate the direction you expect future prices will take. He or she must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trades lose money. (Notice the words “pay the losses”. When paper trading futures, you can ignore those nasty words!)
Futures trading is a sort of insurance plan for those who are trading and investing. A farmer may sell futures on his wheat crop if he thinks the price will go down before the harvest; conversely, a bread manufacturer may buy futures if they think the price of wheat is going to rise before the harvest. Regardless of the price movement, both are guaranteed their price. The final component of the equation is the investor in futures trading who looks for changes in the futures markets and seeks to gain advantages by buying or selling at a profit.
Futures Trading Upside
Trading futures is an excellent way to make money. It is said that Richard Dennis, a famed commodities trader, was able to parlay $1,600 of borrowed money into $200 million over ten years. Futures trading has a bad reputation as being filled with risk and while there is risk; the truth is that futures trading is only as risky as a trader makes it. This is not the lottery or a trip to the casino; if you take a conservative approach, look for a reasonable return and make this a business then the probability of success in commodity trading is very good. The downside of paper trading futures is that even if you amass a $200 million fortune, you can’t collect it. Remember we’re just learning while paper trading futures…you can spend real money when you open a commodities account!
Getting Started Paper Trading Futures
There are a large number of companies on the Internet that offer free paper trading; a simple Google search will give you more choices that you can imagine. These companies offer this service in hopes that after you get comfortable paper trading futures, you will open a commodity account with them. In the meantime, once you have registered simply follow the directions of the commodity trading software and you are ready to begin.
What You Might Notice
If you put the cart before the horse and try to implement positions before you understand futures trading, you will be in for a surprise. The language of futures trading is different; there is terminology you need to learn, strategies that you won’t understand and even the trading software will probably be confusing. So before you try to begin commodities trading, go back to school and learn the terms, learn the techniques and learn the software where you are paper trading futures.
Is Paper Trading Futures Important?
In and of itself, paper trading futures is not important; it is merely a simulation of the things required to trade futures in the real world. What is important while paper trading futures is the approach you take; if you treat this like a game or don’t understand the importance of learning futures trading, you should seriously reconsider attempting to trade futures. This is a skill and the consequence is losing your money so don’t take paper trading futures lightly.
Conclusion
It is difficult to find another business opportunity where you can practice and learn for free. Take advantage of this unique opportunity and start paper trading futures today. If you would like to view how we trade the futures markets in our members area register here for a 14 day guest pass to the GT members area.
Futures Trading for Beginners
We all have to take that initial first small step, when we start a new journey. This is true of futures trading for beginners as well. Even if you have investment experience, you might not know the difference between stock trading and futures. In this blog and the following ones on futures trading we’ll look at futures trading for beginners and I’ll offer you some of the basics to get you going. If you have never tried futures trading, this is ok; the journey may be long and together we’ll take the first step now.
What Are Futures?
Futures trading is different from investing in the stock market or bonds since you don’t actually own anything. In futures trading, you are speculating on the future direction of the price in the commodity you are trading. This is different for beginners in futures trading; it is like a bet on the future price direction. The terms “buy” and “sell” merely indicate the direction you expect future prices will take. He or she must only deposit sufficient capital with a brokerage firm to insure that he will be able to pay the losses if his trades lose money.
Futures trading is a sort of insurance plan for those who are trading and investing. A farmer may sell futures on his coffee crop if he thinks the price will go down before the next crop; conversely, a grain manufacturer may buy futures if they think the price of soy beans is going to rise before the harvest. Regardless of the price movement, both are guaranteed their price. The final component of the equation is the investor in futures trading who looks for changes in the futures markets and seeks to gain advantages by buying or selling at a profit.
What Is The Potential of Futures Trading?
Trading futures has the potential to be an incredible profit maker, however it can also be an incredible loss maker. Our No1 Rule as traders must be “Protect the integrity of our capital, first and foremost” It is said that Richard Dennis, a famed commodities trader, transformed $1,600 of borrowed money into $200 million over ten years. His results are rare and unusual and not everyone can expect this level of successful trading that he achieved, however the good news is; you can make money in futures trading. Even if you’re a beginner to trading futures, you can start to make small profits.
Futures Markets?
Novice traders in futures trading should understand that futures are different to trading on the stock market. Some of the locations are well known like the, the New York Mercantile, the New York Cotton Exchange, Chicago Mercantile Exchange and the Chicago Board of Trade. Some of the main futures markets are:
- Currency Trading – Currency trading, also known as FOREX (foreign exchange) trading, involves buying and selling currency from many different countries such as the British pound, the US dollar, and the Swiss franc.
- Energy Futures – This market centres its attention on natural gas and crude oil futures.
- Metals – This is one of the more popular and best known sectors. The typical commodities in metals are silver and gold futures
- Agriculture – This is a broad, commonly traded futures which includes such things as wheat, corn and soy beans futures.
- Interest Rate Futures – This market focuses on financial transactions, interest rates and bonds, such as ten year notes futures
- Foods – This sector includes items such as orange juice, sugar and coffee futures
What Action Can You Take To Get Started?
There are several things the novice trader can do as a beginner in futures trading:
- Start Learning – There is no substitute for education. Read books about futures trading, talk with others that trade futures and search the Internet for information about futures trading. Once you start investing your own money, you will be glad to understand futures trading.
- Create a Commodities Trading Plan – This is vital. It is important to outline your goals and objectives as well as your trading strategies. This way, if greed and fear interferes with your decision making process, you will have a well defined plan of action to refer to.
- Select a Broker –You can implement your own trades, however we all need someone to place the orders. Some full-service brokers offer more services and most Internet brokers offer lower commissions. Even though you’re a beginner in futures trading, define what you want from your broker and find someone who meets your needs.
To Conclude
Futures trading for beginners starts with that first step into the unknown, learning, growing, defining your trading parameters, implementing your trading plan and having fun. This journey is shorter now for you because you’ve just taken the first step, so if this feels right for you, keep moving towards you goals. If you would like to see how we trade Futures in our members area register here for a 14 day guest pass to the GT members area.