Day-trading futures markets are very attractive to investors worldwide, including businesses and individuals. However, with limited experience, the chances are that you won’t know where to start. The valuable opportunities might easily pass you by while you are still wondering what the best strategy for day-trading is.
This article will help you learn about three popular day trading strategies and how they can help you smartly invest in futures trading. But, before we elaborate on day-trading techniques, let’s quickly go through some basic day-trading rules.
Basic rules before you day-trade
As a trader, you can easily get sucked into the day-trading game without knowing its rules. These rules are not here to limit you in any way but to protect you and your assets. Here are some of the most basic rules that will make it easier for you to become a day trader in futures trading.
Solid risk management
If you’ve tried to find an answer to the “how much do day-traders make a day” question, the figures could mesmerize you. Yes, you can make solid profits, but it doesn’t mean there are no risks involved. You will need to develop a solid risk management strategy if you don’t want to dry up your resources.
It would be best to learn about how the commissions work and make smart trades to mitigate the risks of commissions adding up quickly. There are also the risks of incurring over fees and extended drawbacks.
Futures day-trading calls for ongoing research and education. The information can empower you to identify risks and adopt appropriate strategies to minimize them. For instance, you start by setting a daily loss limit to 3% of your total capital. With a proper trading plan to follow, you will be able to develop a better trading discipline.
Do your homework
In the world of futures trading, your success depends on how much actionable knowledge you have. Besides the day-trading strategies you’ve come here to learn about, you will have to develop a profound thirst for knowledge.
Going through finance sections of daily news, finding out financial information about companies, reading charts and reports – these should become your day-to-day activities. One other thing – you should visit leading financial websites and related investing social media accounts regularly.
Start early in the day
Most of the traders are active only a few hours per day. However, the futures trading market is not active at the same time the stock market is. Unlike the stock market, the best time of the day for trading futures is around the opening time. This is the time when you will be able to find solid futures day-trading set-ups.
Be mindful of the fact that not all futures markets have the same official close times. This is important because some of the good opportunities are also known to appear during the last hour. The best practice would be to check your futures market of choice as soon as it opens and right before it closes.
Top 3 day-trading strategies
You’ve probably started reading this with the question of “What is the best strategy for day-trading?” on your mind. There is no straightforward answer to it. Every trader is unique. We will let you decide on your own. Now, since we got basic day-trading rules out of the way, let’s focus on the most successful day-trading strategies.
Scalping is all about making a series of small wins that can quickly add up to a lot of the profit by the end of the trading day. The traders who focus on very short-term transactions, with tiny target points, are popularly called scalpers.. Scalping is one of the fastest day trading strategies.
The scalping day-trading technique revolves around executing trades with a narrow margin of profit.
Scalpers look for small price bounces, short-term pullbacks, and supply/demand imbalances to identify the profitable set-ups to trade. For instance, a change of $0.01 is a common proft margin for scalping. They don’t hold onto the futures contract for long periods.
Some scalping trades can be completed in seconds. For this reason, it is most suitable for people able to make quick, informed decisions. It also requires focus, as you will have to track your investments in real-time. Scalpers also tend to immediately liquidate a position as soon as the market goes against them, so to control the losses.
- It doesn’t require a big starting capital
- Limited exposure to market because of the fast trading
- Reaching targets is highly probable because of the regular small price movements
- It doesn’t require extensive research or planning
- Due to the high number of orders, the trading costs go up
- A considerable number of trades calls for active trade management
- Overtime scalping can cause a burnout
Compared to scalping, swing trades take more time to complete. When swing trading, traders often hold their respective positions for several days and sometimes a few weeks. This enables traders to profit by entering and exiting at previously well-thought levels. While it is not a day-trading strategy, swing trades can be made in a single day.
One can invest in futures at the opening of the market and capitalize on the positive price movement during the last hour before the market closes. In this case, you won’t be holding your position for the next day, week, or month. Instead, you will be holding it for just a couple of hours.
This is a great way to avoid market gaps following news announcements during market downtime while still capitalizing on opportunities. Tracking the price action and using technical analysis is a must-do in this instance. It can help traders assess which futures market to trade.
- Flexibility enables traders to capitalize on favourable price movements
- The execution is not time-consuming and focus-heavy
- Less market risk given that traders can exit the position by the end of the day
- Enables traders to learn how to use technical analysis
- Holding a position for an entire day can generate considerable losses
- Traders need to have a constant insight into their watchlist
Range trading is also among the day trading strategies that work. What is a trading range? The trading range is a term that refers to the phenomena when a market consistently moves between two technical levels or price levels. You can observe range trading in different time frames. Day traders often use five-minute and hourly charts to do it.
Range trading also belongs to the group of active day trading techniques. Simply put, a trader has to identify a range at which a particular futures contract is bought and sold. A trader picks up a range and then trades in that range. For instance, you can find that a market currently trades between $40 and $20. You think that is going to rise from $20 to $40 by the end of the day. You buy it at the $20 price range and trade it if it rises to $40.
The most important part of range trading is finding out the best entry position to capitalize on the range. Ranging conditions don’t last too long. At some point, every trading range ends because the price breaks out.
- It doesn’t require a large starting fund
- Traders can easily see the price moving out of the range and cut the losses
- The profit targets can be hit quickly
- It’s an easy strategy to follow
- The security can go out of its range
- Traders have to wait until the range is fully established
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Day-trading is attractive to both absolute beginners and savvy traders. Now that you know some basic rules and the best day-trading strategies that work, we will leave you to do some thinking and research. Once you decide which strategy for day-trading you want to master, you will need to put your skills to practice.
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