There are
the three major types of Futures Trading Strategies that the professionals use trend line trading, cycle trading and
seasonal trading.
Trend
Line Trading: Trend line trading simply
put, you seek to trade with the trend - as seen in the chart patterns.
Recognize the larger market trends and pay less attention to the 'noise' in the
daily fluctuations. Markets tend to move in the direction of the trend over
time, so attempting to trade against the trend would be almost suicidal. Place
stop losses below the trend line, and take profits when the market approaches
the resistance line.
Cycle
Trading: In order to trade cycles
effectively, you need to first find a market with reliable cycles. Reliable
cycles in stock index futures include 20 to 23 week cycles and 14 day cycle. As
for grain and livestock markets, the 9 to 11 month cycle would be a good guide;
and for the silver and gold markets, the 28-day cycle. Interest rate futures
follow an approximately 32-day cycle. Avoid markets that are highly correlated,
as this would expose you to even higher risk than necessary; both markets would
tend to move in the same direction. Should your prediction go wrong, you would
take losses on both fronts. Markets that tend the follow similar basic cycles
should thus be avoided.
Seasonal
Trading: Seasonal trading can be one of the
most effective Futures Trading Strategies.
While other trading methods may have a strong theoretical backing, they have
little empirical evidence of success. In contrast, the seasonal trading method
may have almost no theory supporting it, but tends to perform the best
empirically. This method operates on the assumption that certain markets tend
to peak or trough at certain months of the year. This is especially true in
commodities markets, where prices may fluctuate along with the seasons.
In contrast,
seasonal price tendencies can generate success rates of up to 80 percent in
some markets. There are three major types of price tendencies: seasonally in
cash prices, futures prices, and in futures spreads. Seasonally in Cash Prices
tend to operate on a month-to-month basis. Seasonal in Making Money Trading Futures Prices tend to operate on a
week-to-week or even a day-to-day basis because of the nature of futures; new
futures are generated as previous ones expire, and different contract months
will reflect different fundamental conditions. Seasonal in Futures Spreads
essentially reflect the relationships between two different but related markets
or between two different contract months in the same commodity.
