Best Future Trading Strategies 2024 Reviewed

In the world of trading, futures trading is a powerful tool that allows traders to buy and sell assets at a future date at a preset price. While futures trading can be complex, it can also be rewarding with the right strategy and mindset. This article will explore the best futures trading strategies for 2023 and provide tips to help traders succeed.

What is Future Trading?

Futures are financial contracts that allow traders to buy or sell an underlying asset at a specified price and a future date. These contracts are traded on regulated exchanges worldwide, allowing investors to profit from price movements on a wide range of assets, from commodities like oil and gold to financial instruments like interest rates, stocks, and bonds.  Futures trading is a complex and dynamic activity that requires a solid understanding of the markets, risk management, and trading strategies. 

Read More: Best Futures Trading Platforms 2024 

Futures Contract

Futures contracts are financial instruments between two parties to buy or sell an underlying asset at a specified price and date in the future. When you trade futures, you can speculate on the prices of securities and commodities or hedge against price volatility. Assets like livestock, forests, grains, stock market indexes, currencies, cryptocurrencies, and oil can back futures contracts. Generally, futures traders are investors looking to profit from price fluctuations and business clients who want to manage risks.  

Futures Trading

Futures trading is a type of investment that involves buying and selling futures contracts, which are agreements to buy or sell a specific asset at a predetermined price and date in the future. The asset in question could be anything from commodities like gold or oil to financial instruments like stocks or bonds. One of the main benefits of futures trading is the ability to leverage your capital, which means you can control a large amount of the underlying asset with a relatively small investment. Traders can leverage their capital because most contracts are traded on margin, which means you only need to put up a fraction of the total contract value as collateral to enter into a trade. The main pros of futures trading are leverage, hedging, and diversification. 

Why Should You Have a Future Trading Strategy?

A futures trading strategy is a plan of action that a trader uses to decide to operate in the futures market. The strategy can involve various techniques to identify profitable trading opportunities, including technical analysis, fundamental analysis, and various trading indicators. Generally, futures trading can be volatile and risky but also incredibly lucrative. Having a futures trading strategy is essential to success in this market.

A trading strategy helps traders manage risks, stay disciplined, and increase their chances of success over the long term. With a solid trading plan, traders may avoid impulsive decisions and emotional reactions, leading to better outcomes.

What Should You Pay Attention to When Trading Futures?

Before diving into the best futures trading strategies, it is essential to understand what to pay attention to when you trade futures. Here are a few key factors to consider:

Avoid Trading Highly Illiquid Markets

Illiquidity refers to a market condition with few buyers. Sellers, and market moves. Transactions may take more work to execute at fair prices in illiquid conditions. The futures market can become illiquid for various reasons, including low trading volume, limited market participation, or lack of interest in a particular asset. Trading in illiquid markets can be risky, as traders may have difficulty entering or exiting positions, leading to large losses. In addition, illiquid markets can be subject to greater price volatility, as even small transactions can significantly impact the market price.

Avoid Scalping Strategies

Scalping is a short-term trading strategy that involves making many trades over a short period, intending to profit from small price movements. While scalping can be an effective strategy in certain market conditions, it can also be risky and inexperienced traders should avoid it. Scalping requires significant skill and discipline because you have to make quick decisions and react to changing market conditions. That is why you are better off learning how to trade with long-term trading strategies before trying to scalp, so you don’t lose money.

Avoid Holding Trades Overnight/Weekend

Holding trades overnight or over the weekend can be risky, as traders may be subject to unexpected price movements or market events. In addition, some futures contracts are subject to “margin calls,” which require traders to maintain a certain level of equity in their accounts or risk liquidating their positions.

You should have a clear exit strategy to avoid holding trades overnight or over the weekend. You should prepare to exit your positions if market conditions change or you are no longer comfortable with the risk. Also, ensure you have adequate margins in your accounts to cover potential losses and prepare to meet margin calls if necessary.

Best Futures Trading Strategies

The futures market offers a wide range of futures and several opportunities to profit from price swings. Yet, employing tried-and-true trading techniques results in immense success. Here are some of the best futures trading strategies supported by market research.

Pullback Strategy

As the name implies, a pullback strategy is a powerful futures trading strategy that depends on price pullbacks during trending markets. The strategy involves identifying a market that is in an uptrend or downtrend and waiting for a temporary pullback or retracement in price. Traders then look for key support and resistance levels to confirm that the pullback is over and enter a trade in the direction of the trend. 

A trader might look for a temporary price decline in an uptrend, followed by a rebound that breaks through a key resistance level. The trader would then open a position favoring the long side, wagering that the uptrend will continue. Conversely, in a downtrend, a trader might look for a temporary bounce in price, followed by a decline that breaks through a key support level. The trader would then open a position in favor of the short side, wagering that the downtrend will continue.

As investors start taking gains, pullbacks develop, and the futures price moves in the opposite direction of the breakthrough. To join at a more advantageous price and drive prices higher, traders who missed the first price move might wait for the price to return to the resistance or support level.

Going Long

Going long refers to buying futures contracts and waiting for the future price of the underlying commodity to reach a certain price level. If the price change goes in the direction you predicted, you can sell the same futures contract at a higher price and get a profit. However, a decrease in price or movement in the opposite direction will lead to loss. Your profits and losses could be higher than your initial margin deposit due to leverage. 

Breakout Trading

When it comes to day trading, breakout trading is a popular approach. A breakout happens when the price of an underlying asset leaves an established range for trading. Breakout trading aims to catch the market volatility during the price breakout at support, resistance, and trendlines, among other technical levels. An increase in volume and great volatility usually accompany the breakout movement. The rise is due to the numerous pending orders that get executed. The basic concept behind breakout trading is to sell when prices break below support and to buy when prices break above resistance.

Spread Trading

The spread strategy involves buying and selling two related futures contracts simultaneously. This strategy takes advantage of price discrepancies between two related assets. Traders using this strategy should deeply understand the market and the underlying assets. Market volatility does not affect spread trading, resulting in lower risks to traders. 

Bull Calendar Spread

A bull calendar spread is a trading strategy used when a trader thinks an underlying asset’s price will rise in the short term but may decline in the long term. The trader would purchase a futures contract with a near-term expiration date and sell a futures contract with a longer-term expiration date. As the near-term contract approaches expiration, the trader would sell it and purchase a new near-term contract, repeating the process until the longer-term contract reaches expiration.

Bear Calendar Spread

On the other hand, in a bear calendar spread, a trader hopes that the price of an asset will decrease in the short term but may increase in the long term. The trader would sell a futures contract with a near-term expiration date and purchase a futures contract with a longer-term expiration date. As the near-term contract approaches expiration, the trader would purchase a new near-term contract and sell the longer-term contract, repeating the process until the shorter-term contract reaches expiration.

Trend-Following

Trend-following strategies involve using technical analysis tools to identify trends in price movements and market momentum. Traders will typically look for trends in price patterns, moving averages, and other technical indicators to determine whether the market is in an uptrend or a downtrend. Once you identify a trend, seek to enter the market and take positions in the direction of the movement. For instance, you buy a stock future if it is rising to benefit from the rise in price.

One of the key advantages of the trend-following strategy is that traders can use it in various markets, including agricultural commodities, bonds, cryptocurrencies, and currencies. This flexibility makes it a popular strategy among traders who want to diversify their portfolios across different asset classes.

Tips for Futures Traders

Although success can lead to significant profits, making mistakes when trading futures can be very costly. Hence, having a strategy in place is essential before you commence trading. We have outlined some of the top tips that can help you find your way with stock futures.

Committing to an Exit Strategy

Committing to an exit strategy is very important, and we cannot emphasize this tip enough. You should have a well-defined exit strategy tailored to your trading goals and risk tolerance. This strategy should include guidelines for when to exit a short position or a long position in a trade based on price levels. By committing to an exit strategy, you can help reduce the potential for emotional trading decisions and better manage your risk exposure.

Don’t Follow & Trade Too Many Markets

Don’t follow and trade too many markets, especially if you’re just starting with futures trading. As a new futures trader, there’s no necessity to begin trading many contracts at once. Avoid the rookie error of utilizing your whole account balance to trade futures contracts. Although some drawdowns are unavoidable, you should avoid building a sizable position where one or two poor transactions might leave you bankrupt.

Instead, begin gradually with one or two contracts so that you may create a trading strategy without having to undergo the stress of handling more significant amounts. If you find an effective trading style or method, consider upping your order size. Adjust your trade as required after finding a strategy that works for you. 

Don’t Pace Your Trading If You Are Newbies

For new futures traders, taking a measured approach and avoiding the temptation to trade too frequently or aggressively is essential. Overtrading can lead to losses and make sticking to a well-defined trading plan harder. By taking a patient and systematic approach, new traders can build experience and confidence over time.

Learn From Margin Calls

If you receive a margin call, you presumably did so because of holding onto a lousy transaction for too long. Hence, take a margin deficiency as a sign that you’ve grown emotionally tied to a trade that isn’t performing as expected. You could be better off abandoning the losing trade than moving more money to cover the call or closing out open positions to lower your margin need. As the saying goes, in trading, cut your losses, and seek the next trading opportunity.

Be Persistent

Futures trading can be challenging and requires persistence and discipline for long-term success. Maintaining a positive attitude and staying committed to your trading plan is crucial, even during market volatility or losses. By maintaining a persistent and focused approach, traders can develop the skills and experience needed to succeed when trading the futures market

The Top 2 Futures Trading Platforms

Interactive Brokers

Interactive Brokers is a popular online brokerage firm that provides access to a wide range of financial products. These products include futures, stocks, options, bonds, and more. The platform is known for its advanced trading tools and low fees, making it a popular choice among active traders. Interactive Brokers also offers a variety of educational resources and research tools to help traders stay informed about market trends and make informed trading decisions.

TD Ameritrade

TD Ameritrade is a popular online brokerage firm that provides access to various financial products, including futures, stocks, options, ETFs, and more. The platform is known for its user-friendly interface and comprehensive research tools, making it a popular choice among new and experienced traders. TD Ameritrade also offers a variety of educational resources and investment guidance to help traders make informed decisions.

Final Thoughts

Futures trading can be complex, but with the right strategy and mindset. To be successful in futures trading, traders should pay attention to market trends, use technical analysis, manage risk, and stay disciplined. By following these best practices and avoiding common mistakes, traders can maximize their chances of success in this exciting market.

Frequently Asked Questions (FAQs)