Boost Your Profit Potential with These Futures Trading Strategies

Boost Your Profit Potential with These Futures Trading Strategies

The most popular futures trading methods are to purchase if you believe the price is going up and sell if you believe it is going down, as basic as it may seem. Thankfully, we can do either at any moment as futures traders. Since a futures contract is just an agreement to purchase or sell an item at a later date, we are able to sell something that we do not already own. The challenge then becomes predicting whether the price will increase or decrease. We’ll go over the top four strategies to assist in making that choice.

Developing Trading Strategies in Advance

It’s advisable to plan ahead before taking any kind of trade, including futures trading methods. In this manner, you’re avoiding the error of trading based solely on intuition. Answering these five inquiries is crucial:

  • What is the purpose of the trade?
  • What level of risk are you willing to take, and does this deal fit inside that range?
  • Which stop-loss method do you use?
  • When should you cut your losses and walk away?
  • How are you going to keep an eye on the market and price movements?

The Pullback Method

The pullback is the first futures trading strategy that almost all futures traders learn. When the price breaks above or below a level of support or resistance, it is called a pullback. A resistance level is one that the price finds it difficult to rise over. At the same time, the price finds it difficult to drop below, and is referred to as support. The price breaks through the resistance level during an advance and then reverts to it. We now take a long/buy position in the hopes that the upswing will continue.

In contrast, when we start a short position and expect the downtrend to continue, the price of a downtrend drops below a support level and rises back to the support level.

Usually, these two pullbacks happen when traders begin to take gains at predetermined intervals. Next, we profit from the ongoing rally or slump.

The Breakout Method

Breakout trading is the second most often used futures trading approach. When a futures leaves a pattern, we profit from its unpredictability. To put it simply, we are searching for a decreasingly widening trading range. A breakout can also be indicated by a head and shoulder, rectangle, pennant, or falling wedge.

As a result of the higher volume brought on by awaiting completed orders, there is a breakout. We are capitalizing on this increase in volatility.

To take advantage of the upswing or downswing, we may also establish our pending orders (buy-stops, sell-stops).  We should place our stop-loss exactly below or above the long/short entry of the breakout, and when we hit the height of our triangle’s or wedge’s base (pink bars above), we’ll grab winnings.

The pattern’s height from the neckline to the head serves as our take-profit figure when utilizing the head and shoulders pattern.

The Range Method

Range trading is another great futures trading strategy examined in this article. When we utilize the rebound of important support or resistance levels on a chart, range trading is applicable. Trading choices now include a human element thanks to this tactic.

Once resistance is achieved, it is difficult to get above it. Once it’s achieved once more, some traders may decide to sell or initiate short positions, which will result in a decline in price.

Conversely, buying pressure arises when buyers enter the market after support is tested twice or when short sellers take their winnings.

The Average Directional Movement Index (ADX) may be used to gauge a trend’s strength. There is no trend if the ADX indicator is less than 25.

Near recent highs or lows, or at the resistance (for buy orders) or support (for sale orders) band, will be our take-profit level. 

The Price Action Method

Trading price action using time and sales is an additional strategy for trading futures.

This “pure” price “met” technique concentrates on particular price behaviors at pivotal chart levels in conjunction with order flow confirmation signals.

When trying to trade significant levels, we want to keep an eye on the time and sales at such peaks to check for absorption and determine whether there is a ceiling. We will withdraw from that level if there is a wall of sellers up there and we are unable to take in all of those contracts.

To find out if there is a floor and to observe absorption, we want to keep an eye on the time and sales at such low points. The price will stall there if there is a wall of buyers at that level as it tries to satisfy all of the purchase orders; if we can’t meet them all, the price will increase away from that level.

In terms of time and revenue, you want to see both a standstill in pricing and a lot of filled orders. That is a clear sign that there are too many restricted orders in our route, and the price will frequently retreat from that point.

Bottom Line 

Even if there are still a lot of things to learn, using these futures trading strategies will help you greatly.

To assist in making a trading choice, we strongly advise adding a fundamental analysis of an item to your investigation. Reverse trends and levels of support or resistance can be caused by fundamentals.

As usual, trade only with money you can afford to lose (risk no more than 10% of your portfolio in a single trade; the smaller the better). Bad margin trades have the potential to swiftly deplete your account. 

We hope all of your trades go well for you!