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Three Rules for Winning at Day Trading Futures

, | September 6, 2018 | By

The futures markets are among the most attractive venues for day traders. Facing a wide variety of asset classes, futures products consistently exhibit the volatility and liquidity necessary for an active trading approach to flourish.

However, the characteristics that make futures attractive also test the resolve of many aspiring market participants. Washout rates of new traders are estimated to be upwards of 90%, illustrating the perilous nature of the marketplace.

While the odds are seemingly stacked against an individual pursuing a career day trading futures, several rules can improve a trader’s chances of success.

Rule #1: Have a Plan

It seems intuitive, but taking the time to develop a comprehensive trading plan is the first step in approaching the markets from a position of strength. Futures are fast-paced, hypercompetitive environments. Without a predefined plan of attack, an active trader is many times more likely to get lost in the financial wilderness.

An adequate plan for day trading futures must thoroughly address several market-related elements:

  • Type of trading: Concrete guidelines defining the whats, whens, and hows of conducting day-to-day operations are an essential part of an effective trading plan.
  • Identifying opportunity: A rules-based approach governing trade selection and market entry and exit is critical to the integrity of any strategy.
  • Money management: Properly aligning risk to reward is often cited as the single most important element of a winning approach to the market.

Even if your plan is not optimal, it’s still better than no plan at all. The mere presence of a conceptual framework will bring structure to your trading operation as a whole. It plays a key role in establishing consistency and replicable results.

Rule #2: Be Emotionally Even-Keeled

Staying emotionally grounded is one of the most important aspects of successfully day trading futures. Maintaining a moderate temperament in the face of turbulent markets and account drawdowns is a common characteristic shared by successful short-term traders.

Adhering to Rule #1 can be a big help in maintaining an even-keeled disposition in the face of adversity or overwhelming achievement. However, when the viability of one’s trading plan is either challenged or confirmed, almost any trader is capable of going “on tilt.” Falling into bad habits, such as overtrading or reckless risk management, are commonly related to the emotional element of the marketplace.

Traders often debate whether it’s possible to truly remove emotion from active trading. Some elect to pursue success via a “hands-off” approach to the marketplace. In the event that your psychology is destroying profitability, options such as automation or broker-managed futures may prove to be the most suitable ways of achieving your trade-related goals.

Rule #3: Keep It Simple!

The old saying “there is nothing new under the sun” may not be more applicable to anything than it is to day trading futures. No matter what type of system or strategy you implement, the chance of it being truly original is slim.

Therein lies one of the greatest parts of trading — you do not need to be a strategic wizard or theoretical physicist to make money. All that you need is a valid strategy and the discipline to follow its execution to a tee.

One of the most common mistakes made by unsuccessful traders is to adopt overly complicated methodologies in an attempt to gain an edge. The combination of proprietary indicators, public domain technical tools, and intricate software applications are frequent practices by those attempting to solve the riddle of active trading. Frequently, the result is conflict within the trading plan and paralysis by analysis.

Remember, a strategy does not need to be complicated to be effective. The most attractive characteristic of any approach is that it’s easily executed. Adhering to a specific method or system must be routine. If it’s not, losses stemming from mistakes, lapses in discipline, and eroding confidence are likely to add up quickly.

Getting Started Day Trading Futures

Day trading futures can be a financially rewarding endeavor. Whether you’re interested in targeting currencies, commodities, or the equities indices, the futures markets offer many suitable alternatives.

For more information on how to incorporate futures into your portfolio, contact the team at StoneX. From self-directed online trading to professionally managed futures, the trade-related service suite at StoneX can help shed some light on the many advantages futures provide market participants.

Download the eBook: Futures and Options Strategy Guide