Here we will outline three trading tools for bigger profits all futures traders can use.
These tools tend not to be used by many traders, but are heavily used by the savvy pro traders to enhance profit potential and you should consider them to in your futures trading.
Check them out for yourself and they will add a new dimension to your futures trading that could increase your trading profits to.
1. Gauging the pulse of the market
The “opening range technique is the ultimate filtering device for futures traders and is highly effective, as it allows traders to take the pulse of the market before entering it each day.
Say you have a buy signal from the previous days close, you can of course blindly buy the open, or you can use this filter.
Here is how it works:
1. Get the opening range and wait.
2. If prices are above the opening range go long with a market order
3. If they are not place a day order 3 ticks above the high of the opening range.
Here you are checking the pulse and strength of the market.
If prices move up your on board, if prices drop from the opening range you are kept out of a losing trade.
If your futures trading method is still telling you to be long, try again the next day. If your short of course, it’s the exact same in reverse.
Sounds simple? It is, but its very effective.
In our experience you can cut losing trades by up to 20% using this tool and it’s an excellent method for filtering your trading signals.
2. How to never a miss a big move
Richard Donchian’s four week rule outlined below may seem simple, but it is highly effective in catching big moves in futures trading.
We all know that most of the big moves each year in futures markets take place from market highs.
Most traders however want to buy dips to support and fail to get in on the big moves. This simple tool however will make sure you never miss a big move.
Here’s how it works.
Let’s assume you are looking at crude oil and spot a buying opportunity. Rather than buying a dip, wait for a new 4 week high and then take a long position.
You should only use this rule only in strong bull or bear markets, not ranging markets.
If you have a strong bull market, buy new four week highs and conversely, if you have a strong bear market sell new four week lows.
Its simple and a very effective tool try it out for yourself and see.
3. Intra commodity spreads
Again, another simple trading idea, which will give you risk reduction and staying power.
All you do is trade two different months in the same commodity
Your aim is to buy the month that is expected to increase most and sell another month to give you some risk protection.
Normally, the front month will move the most, so you buy it and sell a back month. This is known as a bull spread the reverse action in a bear market is a bear spread.
For example, the summer months are the strong ones in unleaded gasoline, so if your bullish buy them and sell a weaker back month as protection.
Spreading works particularly well in these futures markets:
Copper, energies, soybeans, wheat, coffee, sugar, cotton and all the meats expect bellies.
When using intra commodity spreads in futures trading, you need to take into account the general market trend and the strength of the spread. Spreading is great risk control vehicle and a way to get staying power an is a great tool for traders with small trading accounts.
All the above are simple tools, but don’t be deceived by their simplicity. If used correctly they can all enhance your futures trading and give you bigger profit potential.
By: Sacha Tarkovsky
About the Author:
These tools tend not to be used by many traders, but are heavily used by the savvy pro traders to enhance profit potential and you should consider them to in your futures trading.
Check them out for yourself and they will add a new dimension to your futures trading that could increase your trading profits to.
1. Gauging the pulse of the market
The “opening range technique is the ultimate filtering device for futures traders and is highly effective, as it allows traders to take the pulse of the market before entering it each day.
Say you have a buy signal from the previous days close, you can of course blindly buy the open, or you can use this filter.
Here is how it works:
1. Get the opening range and wait.
2. If prices are above the opening range go long with a market order
3. If they are not place a day order 3 ticks above the high of the opening range.
Here you are checking the pulse and strength of the market.
If prices move up your on board, if prices drop from the opening range you are kept out of a losing trade.
If your futures trading method is still telling you to be long, try again the next day. If your short of course, it’s the exact same in reverse.
Sounds simple? It is, but its very effective.
In our experience you can cut losing trades by up to 20% using this tool and it’s an excellent method for filtering your trading signals.
2. How to never a miss a big move
Richard Donchian’s four week rule outlined below may seem simple, but it is highly effective in catching big moves in futures trading.
We all know that most of the big moves each year in futures markets take place from market highs.
Most traders however want to buy dips to support and fail to get in on the big moves. This simple tool however will make sure you never miss a big move.
Here’s how it works.
Let’s assume you are looking at crude oil and spot a buying opportunity. Rather than buying a dip, wait for a new 4 week high and then take a long position.
You should only use this rule only in strong bull or bear markets, not ranging markets.
If you have a strong bull market, buy new four week highs and conversely, if you have a strong bear market sell new four week lows.
Its simple and a very effective tool try it out for yourself and see.
3. Intra commodity spreads
Again, another simple trading idea, which will give you risk reduction and staying power.
All you do is trade two different months in the same commodity
Your aim is to buy the month that is expected to increase most and sell another month to give you some risk protection.
Normally, the front month will move the most, so you buy it and sell a back month. This is known as a bull spread the reverse action in a bear market is a bear spread.
For example, the summer months are the strong ones in unleaded gasoline, so if your bullish buy them and sell a weaker back month as protection.
Spreading works particularly well in these futures markets:
Copper, energies, soybeans, wheat, coffee, sugar, cotton and all the meats expect bellies.
When using intra commodity spreads in futures trading, you need to take into account the general market trend and the strength of the spread. Spreading is great risk control vehicle and a way to get staying power an is a great tool for traders with small trading accounts.
All the above are simple tools, but don’t be deceived by their simplicity. If used correctly they can all enhance your futures trading and give you bigger profit potential.
By: Sacha Tarkovsky
About the Author:
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Filed under Investing by Administrator
October 24, 2008
How to Make Consistent Profits Futures Trading
The issue of direct access is an important one and it becomes more important the more short term your trading is. The market can change from a state of seeming paralysis to one of shocking volatility and activity in a flash. The length of time it takes between you deciding to enter an order and the order actually being in the market is obviously important.
When I first started trading I used a phone broker and was dismayed that my fills would often be so far from the price the market was trading when I first entered the order.
The first time I visited the trading floor, I discovered why. When I called in an order, first my discount broker would check my account equity, then he would call a phone booth on the floor, the phone broker on the floor would then write the order down and pass it on to a booth next to the appropriate pit, at that booth my order would be written down again and then signaled to a broker in the pit to be executed.
As you can imagine this would take quite a long time, even longer of course if the market was very active, as this would mean that the broker in the pit would be too occupied to take new orders. Compare this to my experience of trading as a pit trader. In the pit I was in the heart of the market and could observe every single order as it was executed (there was no delay in my price feed!).
To initiate a trade, whether it was to buy or sell at the market, or join the bid or the offer, all I had to do was open my mouth. You can start to see the huge advantage that trading on the floor gave me over off floor traders; and that doesn’t take into consideration the fact that my round trip costs fell by 96%.
Now the floor no longer exists, not in Europe at least, so why talk about the advantages of pit trading? Well the level playing field is now open to all, but very few take advantage of it. Trading with an electronic trading platform is exactly the same as trading in the pit, except I can sit down, it is much quieter and there are no crude jokes flying around.
I can trade with the click of a mouse; my order shoots to the exchange, enters in the market and appears back on my screen before I have time to blink. I think the advantages of direct access trading are clear and any futures trader still using a phone broker should move to direct access, they will also find their commissions are less (around $8 for private client traders).
The next question that arises is why trade futures? That is an important consideration given that there are a variety of alternatives vying for your trading capital (spread betting, CFDs and options), but in my opinion, futures are the only option (no pun intended) for successful short term trading.
A lot of traders are trading the stock indexes like the FTSE, the DAX, the S&Ps, NASDAQ and the DOW, but rather than use futures they are using spread betting firms. The reasons for using these firms is that they require very small amounts of capital to get started, a trader can trade very small amounts (like $1 a point on FTSE as opposed to $10 for FTSE futures) and these firms make opening an account so easy.
I understand the lure of being able to open an account with very little money and trading small amounts, but I have some serious considerations about using spread betting as a realistic vehicle for professional trading.
The two biggest selling points are no commissions and no capital gains tax. There are many different costs to trading, commissions are one and the spread is another (especially when you have to trade at the market as you do with spread betting, with futures you have the choice of joining the bid or the offer).
Commissions are important for an active trader and as an active trader you can get them very low, but lets assume they are $8 per round turn for futures and lets assume that the spread in FTSE futures is an average of 2 points. If the spread with a spread betting firm for FTSE is 6 points and assume that we are trading $10 a point we can compare the two trading vehicles.
Last week I made an average of 2.42 points per contract traded and I traded 48 times. That is, for each contract I bought and sold I made $24.20 before commissions, assuming my commission rate is $8, I made a profit of $16.20 per contract traded, which is $777.60 net profit if my average size per trade is one contract.
Had I had the same success trading with a spread-betting firm, with a 6-point spread, I would have lost $1718.40! Now I would rather pay tax on a profit that no tax on a loss.
There is one other very important reason for trading the futures market rather than a non-exchange traded market such as those offered by spread betting firms. The futures markets are exchange traded and this means that they are fully transparent, i.e. everything is visible and above the table, I can see every single trade that happens. Imagine the trading pit, as it used to be when traders stood physically in a ring trading with each other.
When a trade is entered, the order goes into the pit and is represented there, free to be taken by any other market participant. We can all see what is happening, we trade with the same information and with the same advantages/disadvantages.
Now assume you are a trader who can only trade with one broker in the pit, you can trade as much as you like, any size you like, but he sets the spread he is willing to offer you and you have to trade at market (i.e. buy at his offer and sell at his bid). This broker doesn’t want to loose money, naturally, so he always makes his spread wider than the real market spread, he also, naturally, puts his interests before yours, so he won’t always be willing to trade when the market is moving fast and he is uncertain.
Remember whenever you make money he loses, so he is very careful to maintain his advantage at all times. Who wouldn’t want to be in this brokers position (he isn’t really a broker, though he claims to be)? When you trade with a real futures broker, all the broker does is facilitate your trade; he gives you the ability to have you orders represented in the pit. A real brokers concern is that they execute your order as efficiently as possible, that is their job, they do not take positions and they do not take the opposite side to you.
They naturally want you to make money because by making money you become a client who will continue to pay them commissions. Trading with a spread betting firm is absurdly costly, spread betting firms are like amusement arcades, they can be fun, but to imagine you are going to make your living from slot machines is illusory.
By: Martin Chandra
About the Author:
When I first started trading I used a phone broker and was dismayed that my fills would often be so far from the price the market was trading when I first entered the order.
The first time I visited the trading floor, I discovered why. When I called in an order, first my discount broker would check my account equity, then he would call a phone booth on the floor, the phone broker on the floor would then write the order down and pass it on to a booth next to the appropriate pit, at that booth my order would be written down again and then signaled to a broker in the pit to be executed.
As you can imagine this would take quite a long time, even longer of course if the market was very active, as this would mean that the broker in the pit would be too occupied to take new orders. Compare this to my experience of trading as a pit trader. In the pit I was in the heart of the market and could observe every single order as it was executed (there was no delay in my price feed!).
To initiate a trade, whether it was to buy or sell at the market, or join the bid or the offer, all I had to do was open my mouth. You can start to see the huge advantage that trading on the floor gave me over off floor traders; and that doesn’t take into consideration the fact that my round trip costs fell by 96%.
Now the floor no longer exists, not in Europe at least, so why talk about the advantages of pit trading? Well the level playing field is now open to all, but very few take advantage of it. Trading with an electronic trading platform is exactly the same as trading in the pit, except I can sit down, it is much quieter and there are no crude jokes flying around.
I can trade with the click of a mouse; my order shoots to the exchange, enters in the market and appears back on my screen before I have time to blink. I think the advantages of direct access trading are clear and any futures trader still using a phone broker should move to direct access, they will also find their commissions are less (around $8 for private client traders).
The next question that arises is why trade futures? That is an important consideration given that there are a variety of alternatives vying for your trading capital (spread betting, CFDs and options), but in my opinion, futures are the only option (no pun intended) for successful short term trading.
A lot of traders are trading the stock indexes like the FTSE, the DAX, the S&Ps, NASDAQ and the DOW, but rather than use futures they are using spread betting firms. The reasons for using these firms is that they require very small amounts of capital to get started, a trader can trade very small amounts (like $1 a point on FTSE as opposed to $10 for FTSE futures) and these firms make opening an account so easy.
I understand the lure of being able to open an account with very little money and trading small amounts, but I have some serious considerations about using spread betting as a realistic vehicle for professional trading.
The two biggest selling points are no commissions and no capital gains tax. There are many different costs to trading, commissions are one and the spread is another (especially when you have to trade at the market as you do with spread betting, with futures you have the choice of joining the bid or the offer).
Commissions are important for an active trader and as an active trader you can get them very low, but lets assume they are $8 per round turn for futures and lets assume that the spread in FTSE futures is an average of 2 points. If the spread with a spread betting firm for FTSE is 6 points and assume that we are trading $10 a point we can compare the two trading vehicles.
Last week I made an average of 2.42 points per contract traded and I traded 48 times. That is, for each contract I bought and sold I made $24.20 before commissions, assuming my commission rate is $8, I made a profit of $16.20 per contract traded, which is $777.60 net profit if my average size per trade is one contract.
Had I had the same success trading with a spread-betting firm, with a 6-point spread, I would have lost $1718.40! Now I would rather pay tax on a profit that no tax on a loss.
There is one other very important reason for trading the futures market rather than a non-exchange traded market such as those offered by spread betting firms. The futures markets are exchange traded and this means that they are fully transparent, i.e. everything is visible and above the table, I can see every single trade that happens. Imagine the trading pit, as it used to be when traders stood physically in a ring trading with each other.
When a trade is entered, the order goes into the pit and is represented there, free to be taken by any other market participant. We can all see what is happening, we trade with the same information and with the same advantages/disadvantages.
Now assume you are a trader who can only trade with one broker in the pit, you can trade as much as you like, any size you like, but he sets the spread he is willing to offer you and you have to trade at market (i.e. buy at his offer and sell at his bid). This broker doesn’t want to loose money, naturally, so he always makes his spread wider than the real market spread, he also, naturally, puts his interests before yours, so he won’t always be willing to trade when the market is moving fast and he is uncertain.
Remember whenever you make money he loses, so he is very careful to maintain his advantage at all times. Who wouldn’t want to be in this brokers position (he isn’t really a broker, though he claims to be)? When you trade with a real futures broker, all the broker does is facilitate your trade; he gives you the ability to have you orders represented in the pit. A real brokers concern is that they execute your order as efficiently as possible, that is their job, they do not take positions and they do not take the opposite side to you.
They naturally want you to make money because by making money you become a client who will continue to pay them commissions. Trading with a spread betting firm is absurdly costly, spread betting firms are like amusement arcades, they can be fun, but to imagine you are going to make your living from slot machines is illusory.
By: Martin Chandra
About the Author:
Martin Chandra is a full-time investor. Learn more at here.
Filed under Finance by Administrator