Why Trade Futures - Introduction
Leverage
When it comes to trading with small accounts - trading with leverage is key. Without leverage - it would take a lifetime to grow that small account out enough to make life changing money.
With a small account you can trade futures; the leverage is amazing. Using a micro futures contract that takes 55$ "buying power" or margin - a trader can participate in markets that are over 5,000$!!!
In the /mES each point is equal to $5.00 dollars profit. With a 10 point move a trader can make $50 dollars per contract. The "average daily range" in the S&P futures right now is +30 points per day.
No PDT
When trading in the U.S. there is a PDT law (pattern day trade) which limits accounts that are below 25,000$.
This "limit" was invented as a way to "protect" traders from the risks of day trading by restricting them from making more than three (3) round trip trades in 5 trading days.
But - that PDT law is not applied to futures trading and this is one reason that trading futures is great; small accounts do not have to struggle with PDT restrictions
Market Exposure
Futures markets are open 22 hours a day, Mon - Friday. This gives traders a chance to participate from around the world without having to focus on trading the U.S. markets during U.S. market hours.
The Index Futures open at 6PM eastern on Sunday night and close every day at 4PM eastern. So from 6pm to 4pm (22 hours a day) traders get exposure to the markets.
Liquidity is different for futures trading - and that means the typical "after hours" or "pre market" threat that stocks have with low liquidity is not a threat in the futures markets. Trading at any time in the 22 hours is ok - without any "liquidity risks" that stocks face.
Developed for Day Trading
Futures markets have evolved over the years to be the best leveraged day trading product in the markets. There is nothing else we could trade that offers the same exposure into the U.S. Markets than the Index Futures.
The S&P-500 is the market for traders around the globe. Algo's trade it - firms and institutional funds trade it - and retail traders can trade right along side all these other groups.
Index futures allow traders to "go long" or to "go short" - giving traders an opportunity to short the markets without having to worry about "borrowing shares" or borrowing costs.
Index Futures can also be hedged through options and by trading long and short at the same time (through different dated futures contracts; this is called "Basis Point Trading") and this hedging offers traders a chance to swing trade.
Small Accounts and Large Accounts, experienced and novice traders, prop firms, quant funds, CTA's, VC Funds, Hedge Funds, Governments, companies, corporations ... futures trading is for anyone who wants to trade and everyone is included.
Introduction to Futures
For a lot of people this section may be nothing more than a review but I've found that even experienced traders can get caught in a cycle of win / loss / win / loss while losing sight of the big picture.
I believe this is a good review for experienced traders and a great start for new traders. The concepts are simple - and YES simple works.
Trading is NOT about winning and losing - it is about winning more than you lose. There may not seem like much difference within these two concepts now but really grasp the difference.
All traders will lose $$. That is a fact. All trading strategies fail. There is no system or strategy or approach that will get you 100% winning trades. That is why we will NEVER go "all in" on a trade or trade without a stop.
The statistics suggest that 90% of traders fail but I do not believe this is true; 90% of people who attempt to trade w/o education, experience, and a proven strategy fail but TRADERS are experienced people who have a proven strategy and are proficient at using it.
Expectations
One thing that really holds traders back is "unrealistic expectations" of what trading is supposed to be like. This includes
Day Done goals
High Win Rate strategies
Trading "any time" and "any day"
Trading big price moves
Trading w/o taking heat (risk)
We will work through these concepts and hopefully change your point of view towards these topics; changing your expectations can radically change your approach to trading.
Different Approaches
With intraday trading there are two major approaches; "candle by candle" trading and strategy trading. Newer traders should avoid the "candle by candle" approach at first - since it requires strong money management and a solid Risk Reward RR system.
Candle by Candle trading is complicated; it requires a diverse knowledge of patterns, multiple entry techniques, strong money management and an ability to quickly change bias / direction. Often - this is approached with some sort of order flow tool like BookMap or JigSaw Trader.
While "candle by candle" trading offers more opportunities to trade each day these opportunities come with less conviction and lower (profit targets) PT and are more complex than strategy trading.
Once we take the "candle by candle" approach off the table there is "strategy trading" which focuses on specific pattern setups and utilizes patience.
For NEW TRADERS - I propose that strategy-based trading is the easier to grasp and begin applying but - this is not universally true. Only you know if your comfortable with advanced charting, order flow applications, concepts… and the costs that come with these applications.
Not Easy - But Easier
The suggestion is to learn the easy stuff first and focus on trades that have a higher conviction with a greater chance of success; by learning the easy things first a trader can slowly grow into the complex trading systems while continuing to trade the easier plays for account growth and personal confidence.
Strategy Trading is not going to offer so many opportunities to trade each day - but the setups have a higher conviction and greater success rate; they are easier to identify, seen in advance, offer an (Low Risk Entry) LRE opportunity and generally carry a higher RR value.
