For most people who are gainfully employed, longer hours typically equate to greater financial rewards. Whether the motivation is to receive overtime pay or to earn a promotion, dedication in the workplace is a precursor to financial success. However, for active futures traders, this approach isn’t always effective.
Although putting adequate time into the markets is a must, an 18-hour live trading day isn’t the fast track to a lakefront mansion. In fact, maintaining extended futures market hours can be counterproductive. Let’s take a look at three reasons why winning futures traders consistently work smarter, not harder.
One pitfall of active trading is exhaustion. Futures trading is a mentally, physically, and emotionally taxing endeavor. For traders who achieve llong-term success in the markets, managing stress and fatigue is a critical part of everyday life.
In the digital environment, the futures market hours run almost continuously six days a week. If you wanted to, you could trade all day and through the night, Sunday through Friday. Though taking advantage of additional trading hours may look good on paper, it’s often not worth the added physical and mental strain. If you’re staying up all night to trade the European session, how can you be ready for the U.S. trading day?
Overtrading is the act of taking trades that are less than optimal on a frequent basis. Although the additional executions may generate profits in the short-run, sustaining performance for a significant length of time can prove difficult. Of all the ways that traders lose money, overtrading is at the top of the list.
Extending your active futures market hours is one way to increase the chance of overtrading. That’s because the longer you sit in front of the trading screen, the more likely your discipline will become compromised. To avoid the overtrading trap, market professionals take two routine precautions:
- Limit trading hours: Limiting the active trading day to 4-6 hours is one way of cutting down on unnecessary activity. A reduced session length also leaves ample time for two crucial tasks: pre-market preparation and post-market evaluation.
- Apply a structured approach: No matter how long your trading day is, applying a defined strategic framework eliminates the execution of subpar trades.
A trade setup may look really good on paper, but it may not turn out as-advertised in live market conditions. Depending on the product, market depth and liquidity can become compromised during certain futures market hours. Accordingly, these issues often plague trade efficiency:
- Increased slippage: During periods of low participation, having orders filled efficiently can be a challenge. Subsequently, rates of slippage increase during these times.
- Wide bid/ask spreads: As a product’s liquidity lags, its bid/ask spread widens. This phenomenon may cost the trader money as choppy price action and sudden spikes in volatility become more common.
Each futures contract has an ideal time for active trade. Ultimately, the responsibility falls on individual traders to determine when market conditions are conducive to the success of their overall trading plan.
Becoming a Savvy Futures Trader Takes Time and Patience
Learning the ins and outs of the futures markets takes dedication and stick-to-itiveness. You have many products to choose from, and understanding which futures market hours to embrace and which to avoid is one route to achieving your long-term objectives. For more information on how to set your trading clock for success, schedule your free consultation with a Daniels Trading broker today.