Futures Trading Strategy-Explaining Different Trading Methods

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.