The futures markets are dynamic, highly competitive atmospheres. Because of this, new traders often find themselves in a financial hole early on in their careers. However, extensive loss of capital does not need to be an essential part of a market newbie’s education. A wide variety of futures trading strategies can help traders avoid losing money while navigating the marketplace.
When starting your journey into the futures markets, or when initially engaging a new product, it’s crucial to take some time and strategize. Addressing two areas of active trade honestly and thoroughly can greatly enhance the odds of trading success:
- Promoting winning habits
By focusing on each of these factors individually, within the context of a comprehensive trading plan, even those brand new to finance can skip the stress involved with quickly blowing out a trading account.
In order to achieve any degree of success in futures, you must first answer the following question: What is my primary goal for entering the market?
On the surface, the answer appears elementary ― to make money, right? However, there are many ways to accomplish this feat. Each person’s goal will determine which types of futures trading strategies are viable and which will lead to failure given the available resources.
In broad terms, almost every market-related goal will fall into one of three categories:
- Wealth preservation: For well-capitalized traders interested in securing assets for the long-haul, hedging, diversification and risk management strategies are ideal.
- Capital appreciation: Trading plans designed to generate regular revenue streams through aligning risk to reward create the best chance of growing venture capital.
- Speculation: Securing market share through capitalizing on periodic fluctuations in asset pricing is active speculation. Futures products are ideal for speculative strategies due to volatility, liquidity and limited transaction costs.
As your primary goal for entering the market becomes defined, suitable systems and strategies are more readily identified. No matter whether you’re a traditional buy-and-hold long-term investor or a high-frequency trader, it’s best to conduct your day-to-day business while keeping the achievement of your ultimate goal in mind.
Establish Winning Habits
Successful traders often have very different styles, yet exhibit similar habits. This concept is evident across many professions, from heart surgeons to Olympic athletes.
Developing and promoting solid habits brings stability to the practice of any discipline, giving each person their best shot at success. In the financial markets, the strongest futures trading strategies account for profitability killers before a trade is ever placed. Here are a few bad habits of struggling traders and how to avoid each:
- Lack of preparation: Showing up to the market without having completed adequate premarket preparation is a sure-fire way to lose money. Understanding a market’s tendencies, as well as the relevant fundamentals and technicals of the day, is a must.
- Emotional trading: Placing trades in a state of euphoria or fear is detrimental to profitability. Poor trade selection, overtrading or implementing unreasonable profit targets and stop losses are common results. Remaining even-keeled is a key to preserving the integrity of the decision-making process.
- Reckless risk management: Improper use of leverage is one of the leading causes of early retirement for futures traders. Understanding the ins and outs of leverage and money management are essential to achieving longevity in the marketplace.
Additionally, being aware of the contract specifications of each futures product being traded is important. Performing basic tasks, such as regularly calculating your maintenance and intraday margin requirements, go a long way toward helping a trader stay out of financial trouble. Avoiding automatic position liquidations and margin calls are essential aspects of responsible risk management.
Finding the Best Futures Trading Strategies for Your Situation
Sorting through thousands of futures trading strategies for the one best suited for your situation can be a monumental task. From algorithmic systems to fundamental analysis, a trader can choose among a multitude of avenues to achieve their financial goals.
A great place to begin your journey into futures is through talking with a seasoned market veteran. For more information on which self-directed or broker-assisted options are ideal given your resources and needs, check out a free consultation with a member of the team at Daniels Trading.