Wayne Walker - Futures Trading Strategies: Enter and Exit the Market Like a Pro with Proven and Powerful Techniques For Profits

Table of Contents

Futures Trading Strategies

Enter and Exit the Market Like a Pro with Proven and Powerful Techniques For Profits

Wayne Walker

Copyright 2017 by Wayne Walker, All rights reserved.

This book was written with the goal of providing information that is as accurate and reliable as possible. Professionals should be consulted as needed before undertaking any of the actions endorsed herein.

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The information in the following pages is broadly considered to be a truthful and accurate account of facts, and as such any inattention, use or misuse of the information in question by the reader will render any resulting actions solely under their purview. There are no scenarios in which the publisher or the original author of this work can be in any fashion deemed liable for any hardship or damages that may befall them after undertaking information described herein .

Introduction

Congratulations on your personal copy of Futures Trading Strategies. This book will ensure that you are equipped to begin using futures contracts as a trading instrument. We will examine proven futures trade entry techniques along with the technical analysis strategy needed to execute them.

The book is primarily about futures trading, however the futures market can be, and often is, influenced by other markets. In the later chapters we will look at these markets individually and in the last chapter you will be introduced to exchange traded funds (ETFs), one of the most important and useful products created for individual investors in recent years.

There are plenty of books on the market, thanks for choosing this one.

You have probably heard from friends or in the media of traders profiting from the futures market and you may have asked yourself if you could also profit from these global price fluctuations. The answer: yes, you too can participate in the futures market with a trading account.

The futures market is exciting and broad because it allows you to trade futures contracts on everything from cotton and sugar to interest rates and energies. You are not limited to just one sector of the global economy nor to strong economic periods. As a trader you can make money when prices are going up and also when prices are going down in the futures market.

Futures Contracts

The base of the futures market is the futures contract. To participate in the futures market you need to understand what a futures contract is and how it works. Let us begin with a basic definition and then we will move to a more in-depth understanding of the contracts and how you can profit from them. A futures contract is a contract between a buyer and a seller wherein the seller agrees to deliver a commodity/underlying instrument to the buyer on a specified date for a specified price.

Buyers and sellers create futures contracts. This may seem odd at first if you are familiar with trading stocks which are issued by companies that determine the number of shares available. Futures contracts are different from stock market shares. While there is a finite number of stock market shares available, in contrast, there is an infinite number of potential futures contracts available. As long as there is a buyer and a seller, together they can create a futures contract.

Futures exchanges track how many contracts are created and list the amount as volume. Volume tells you how many contracts are created for each available commodity during each trading period. For example if you were looking at the natural gas futures contract and you saw a volume of 75,000 then you would know that 75,000 contracts had been created that day for the natural gas futures.

Volume can reveal a lot about what is going on with a futures contract and how many people are trading it, but it doesn't provide you the whole picture because not all volume comes from traders opening new trades. A sizable amount of volume is generated by traders who are already in trades and want to exit their trades.

Futures traders who are in a trade and want to get out of a trade have to create a new contract to offset their other contract.

As a futures trader you need to be aware of not only how many contracts have been created but also how many of those contracts remain active. High volume and high open interest are signs of good liquidity in the market, which means it should be very easy for you to quickly enter and exit your own trades at a small spread between the bid and ask price. Low volume and low open interest are signs of poor liquidity in the market, which means it will be most likely difficult for you to quickly enter and exit your trades at a good price.

Bid and Ask Price

Let us take a look at the buyers and sellers of the contracts. Futures contracts are quoted in two prices: a bid price and an ask price. The bid price is the price you receive when you sell your futures contracts. The ask price is the price offered when you want to buy futures contracts. The bid price is always lower than the ask price, and the difference between the two is called the spread. When a contract has low volume, the spread between the bid and the ask will be wide. When a futures contract has high volume, the spread between the bid and the ask will be thin or small. As a futures trader, or a trader in general, you want the spread to be as small as possible.

You can be either a buyer or a seller of a futures contract. The futures market provides great flexibility to buy or sell. As long as there is someone on the other side willing to sell a contract you want to buy, or to buy a contract you want to sell, you can create the contract.

Typically, futures traders look to buy a contract when they believe the price is going to go up, and they want to sell a contract when they believe the price is going to go down. Your job as a futures trader is to determine in which direction you believe the price is going to move and trade accordingly.

Futures contract prices fluctuate daily and some futures exchanges limit the distance some contracts can move in one trading period. Futures contracts with maximum price fluctuation rules attached to them will stop trading if they move too far in one direction.

Futures contracts also have what are known as limit up and limit down thresholds. If the price of the futures contract moves up too high or down too low, trading on that contract will stop for a few minutes to allow the exchange to determine if trading should continue that day or if it should be halted to prevent panic on the exchange floor.

Hedgers and Speculators

Buyers and sellers of futures contracts are usually divided into two groups: hedgers and speculators.