Futures Trading Strategies

What is a futures contract? It’s an agreement to buy or sell something at a fixed price and date in the future. The standard contract size for commodities and currencies is 100 units, but they can be smaller or larger; contracts are quoted as per unit. Here you’ll learn about five of the most common strategies employed when trading futures contracts.

Scalping

The first of these strategies is scalping, which involves executing multiple daily trades that usually expand over several days to weeks. Essentially, market participants engage in numerous short positions with offsetting long positions within minutes or hours, resulting in virtually no risk on any trade (a slight loss, if ever).

This strategy has three goals. To generate profits on constant price fluctuations, capture the bid-ask spread that is otherwise lost by holding positions overnight or longer and avoid overnight interest charges for carried positions.

Selling tops

The second strategy is called selling tops and involves placing limit orders at various points above the current market price to sell if prices reach them or move them lower if prices fall. This strategy targets large volume coins that are top movers in upwards trending markets. If proper set stops are executed when reached, this could be profitable even if just a few trades are made per year, provided that one has enough funds to survive volatility.

The strategy is also used when there’s an impending news release, and price charts indicate the highest probability of a sudden increase in volume followed by a sharp decrease.

Selling bottoms

Selling bottoms is another common strategy where limit orders are set at various points below current prices with the intention of selling if/when they reach them or moving them higher if they fall. This targets coins that drop much faster than their overall average when in downwards trending markets. Suppose set stops are executed when reached. In that case, this could be profitable even if just a small number of trades are done annually, provided that one has enough funds to survive volatility.

This strategy is also used when there’s an impending news release, and price charts indicate the highest probability of a sudden increase in volume followed by a sharp decrease.

Extrapolating tops

The third strategy is called extrapolating tops. Investors assume that the highs reached during one period are likely to be repeated or surpassed during another period. This can involve buying at the market, placing limit orders slightly above the current market price to sell if prices reach them, or moving them lower if they fall. If enough coins are bought at this high level, then selling becomes much easier because it will have created additional demand for those coins. Similarly, placing sell orders above current resistance levels increases the chances of sell-offs.

Extrapolating bottoms

The fourth strategy, known as extrapolating bottoms, aims to buy at the market or place limit orders slightly below the current price to sell if they reach them or move them higher if they fall. This strategy can be complicated because a sharp increase in volume could lead to a sell-off that is just as likely to occur from either strong support levels being broken to the downside or from new buyers entering the market and triggering an upside breakout.

Scaling in and out

The final strategy is scaling in and out and requires an investor to own multiple positions on a coin but stagger their entry points instead of buying all at once. This strategy aims to reduce risk by diversifying while staying involved in the market even when it’s going through a downturn and to buy-low and sell-high.

Finally

The above are all valuable strategies that you can use with any chart pattern or indicator. It simply comes down to finding one that works well for you. For more advice on futures trading, contact a reputable online broker from Saxo Bank here, and try one of their demo accounts to help you get started.

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