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When Is Swing Trading Futures a Good Idea?

| July 27, 2021 | By

Active futures traders implement a variety of strategies to secure market share. Among the most popular are scalping, day trading, and swing trading futures. Let’s take a closer look at the art of swing trading and how it may be useful in your financial pursuits.

What Is Swing Trading?

Swing trading is a trading strategy that involves opening and holding a new position in the market for multiple sessions. According to Investopedia, a swing trade remains active “over a period of a few days to several weeks.” Other outlets maintain that this strategy is designed for a two- to six-session holding period, but any way you cut it, swing trading is a multiple-session strategy that requires staying active through a market close.

Honestly, it is tough to argue with anyone’s technical definition of swing trading. Ultimately, the real litmus test of any strategy is whether it makes money―if it does, it’s the right answer! The important thing to remember about swing trading futures is this: The trader holds open positions through at least one, and probably more, market closures.

Futures swing traders face several unique benefits and drawbacks. Here are a few to be aware of:

  • Benefits: Large profits are possible, intraday volatility isn’t as important, and it is less stressful than intraday trading.
  • Drawbacks: It involves greater exposure to systemic risk and long periods of inactivity, and it can be capital intensive.

If you’re interested in applying this powerful strategy, then making your trades affordable is a vital part of success. In reality, swing trading full-sized futures contracts can be expensive. As an example, swing traders targeting the E-mini S&P 500 are on the hook for the maintenance margin ($11,000 per contract) and are exposed to market volatility at $12.50 per tick per contract. For average retail traders, these capital outlays can quickly tie up most or all of the trading account. Other options, such as the CME’s lineup of E-micros and Micro E-minis, offer vastly reduced margins and tick values.

Any trades are educational examples only. They do not include commissions and fees.

When Should I Swing Trade?

Now that we’ve covered the basics, the key question remains: When is swing trading futures a good idea? There are countless answers to this inquiry, but many successful swing traders focus on periods of shifting fundamentals, trends, or pending reversals.

Shifting Fundamentals

By far, the most influential movers of markets are fundamentals. Fed meetings, WASDE reports, armed conflicts, and viral breakouts are a few examples of these types of events.

If positive or negative market drivers are on the horizon, a preemptive or reactive long or short trade may be appropriate. Should this be the case, swing trading futures gives a trader a chance to capitalize on a breakout, trend continuation, or outright reversal.

Trending Markets

Trending markets offer swing traders the opportunity to cash in big on directional moves in asset pricing. Whether they are buying or selling a retracement or making a momentum play, trending markets allow the swing trader to capitalize on exceedingly positive risk to reward ratios.

As a general rule of thumb, swing trading strategies are designed to let profitable trades run. Subsequently, it is not uncommon for payoffs to be three, four, or five five times the position’s initial risk.

Pending Reversals

Correctly picking market tops and bottoms is inherently difficult. Many professional traders and investors even deem it impossible. However, most of those same folks readily admit that identifying an intermediate-term market reversal is very possible.

To recognize trend exhaustion or reversals when swing trading futures, traders typically refer to technical analysis. Popular tools for this endeavor are chart patterns, momentum oscillators, and support and resistance levels. Like trend trading, getting in on a market reversal can produce positive risk-reward payoffs and big profits.

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