• Skip to primary navigation
  • Skip to content
  • Skip to footer
StoneX®

Trade Futures, Spreads and Options with Confidence.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • Technical Ag Knowledge
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • CME Group Offers
    • Small Exchange Resources
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • Apply
    • Access My Account
    • Funding
  • Contact
 

Futures Trading Strategies That Optimize Risk vs Reward

October 7, 2019 by Daniels Trading| Tips & Strategies

No matter what your goals and resources are, having a structured approach to market entry, exit, and risk management is a necessity. Without this type of plan, the vast majority of futures trading strategies will fall short of their potential.

In reality, active traders have thousands of strategies at their disposal. The best ones are designed to identify trades that have an above-average probability of success, a fully defined risk, and potentially lucrative reward. Let’s take a look at several futures trading strategies that align risk to reward in a fashion that can produce consistently solid returns.

The Trend Is Your Friend

Trend trading is the discipline of entering a market in an attempt to capitalize on the momentum of a prolonged directional move in pricing. In futures, trend traders join a move by buying into bullish markets and selling bearish ones.

Read our guide, Basic Training for Futures Traders, and discover 50 of the best tips from experts.

A trader may use both technical and fundamental analysis to identify, enter, and exit a trending market. Here are two examples of popular technical and fundamental strategies:

  • Fundamental: Fundamental traders address trends in regards to a market’s primary underpinnings. They evaluate economic events, breaking news items, and seasonal tendencies with respect to asset pricing. Then they use these market drivers to project price moves and for market entry/exit.
  • Technical: Technical traders often use technical tools and indicators to measure and enter a trending market. One popular strategy is to buy or sell a pullback in price from a periodic high or low. Such tools as Fibonacci retracements or the relative strength index (RSI) can help identify a market entry point within an evolving bullish or bearish trend.

The beauty of trend futures trading strategies is that a period of strong pricing momentum can produce extraordinary gains. To capture large profits, trend traders often incorporate the functionality of trailing stop losses to limit downside risk while attempting to capture the bulk of a directional move.

Trading Reversals

In contrast to trend trading, the primary objective of reversal strategies is to determine the turning point of a market. Completing this task successfully hinges upon accurately predicting the exhaustion point of a prevailing trend.

The strength of a directional move in pricing depends on many factors and may be measured by both market technicals and fundamentals. Here are two futures trading strategies related to reversal trading:

  • Trendlines: From a technical standpoint, a trend is defined as being a series of higher periodic highs and lower periodic lows. When these price points are connected, a trendline is created. When the trendline is violated, the validity of the aggregate move becomes questionable and a reversal possible. A trader then enters a position at market that is the opposite of the prevailing trend.
  • Oscillators: Momentum oscillators are a popular technical approach to trend trading. Stochastics and MACD (moving average convergence divergence) indicators are two that illustrate when a market is becoming overbought or oversold. These tools compare evolving price action to a mean value: When market conditions become extreme, an entry signal is generated.

Trading reversals can be a tricky business — false signals are common, and risk is enhanced. However, when correctly executed, reversal strategies can produce robust profits because they provide premium market entry with respect to a brand-new trend.

Breakouts

A breakout is a swift, directional move in a security’s price. Breakouts frequently occur in the capital markets and may be fueled by news items, economic events, or the presence of key technical indicators.

When a market breaks out, it often does so after a period of tightened price action. Frequently referred to as compression or consolidation, small trading ranges and heavy volumes are two characteristics of a market in this condition. Subsequently, traders commonly view various candlestick chart patterns, such as flags and pennants, as being precursors to a breakout.

Similar to reversals, breakout strategies can provide an abundance of false signals. However, the upside to trading breakouts is limited risk. According to these strategies, price is expected to move directionally, quickly. If it fails to do so, a  trader should immediately deem the position a failure and exit with a small gain or loss.

Do Your Futures Trading Strategies Optimize Risk and Reward?

The key thing to remember about risk and reward is that you don’t have to pay a lot for a little! Strategies that assume large risks in an attempt to secure small rewards are long-term losers ― a trade’s payoff should justify its capital exposure.

To learn more about the diverse array of futures trading strategies at your fingertips, check out Daniels Trading’s Trading Advice portal. Featuring expert analysis and actionable trading ideas, it’s an indispensable resource for any futures market participant.

Basic Training for Futures Traders

Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

StoneX Financial Inc.
Daniels Trading Division
230 South LaSalle Suite 10-500
Chicago, IL 60604
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot
Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top