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Futures Trading Strategies: 3 Starting Points

Trading futures online can prove difficult if strategies are not defined, then followed. You may have heard the futures market referred to as a ‘zero sum game’.

This means for every profitable trade, there is an equal, losing trade. Every step you take to expand your foresight with knowledge and strategy before executing a trade increases the prospect of it being successful and decreases the potential of an unfavorable outcome.

Basic Trading Strategies for Futures

There are three basic, fundamental futures trading strategies you could consider when formulating your approach to a trade:

  1. ‘Go Long’ or take the position that a futures contract will increase in value
  2. ‘Go Short’ or take the position that a futures contract will decrease in value
  3. A ‘Spread’ or taking both sides of a position

If it were only that simple…let’s look at some specific examples for each of these basic strategies.

Go Long

While ‘Going Long’ a S&P 500 E-mini contract would mean you think the index will increase in value, there are other factors at play in your ‘bullish’ futures trading strategy. To name a few:

  • Federal Reserve Bank meetings every 6 weeks during which speculation about interest rate movement may, in turn, move the markets up or down
  • Earnings announcements/product releases from companies in the S&P 500

Go Short

‘Going Short’ or ‘Shorting’ a S&P 500 E-mini futures contract would mean you think the index will decrease in value. Below are some scenarios in which you may be able to take a position:

  • The Thursday 7:30am CST Jobless Report – Taking a position prior to the release of the report
  • Global financial events (ie the Brexit decision or European Central Bank Rate Decisions)
  • Contract expiration and/or ‘roll over’ (selling the contract you own and buying the next expiration date)

Spreads

‘Putting on a Spread’ involves trading at least two different contracts in tandem. Below are three different types of spreads:

  • Calendar Spread – During two separate periods of time, ex. Short the current month and go long a contract 3 months ahead
  • Intramarket Spread – Two or more trades in two separate markets, ex. Taking advantage of price differences by going long the more favorable price and shorting the less favorable
  • On two different exchanges (ie Natural Gas on the ICE and NYMEX)

Know the Economic Calendar

As outlined in the examples above, many of these starting strategies revolve around scheduled events – FED announcements, earning announcements, etc. As these timeframes are known and can directly impact the outcome of your trades, traders should consistently review a daily economic calendar.

Ready to Test a Trading Strategy?

Simulated trading is an ideal way for both new and experienced traders to test new concepts NinjaTrader is always free to use for advanced charting, strategy backtesting and trade simulation. Get started with our FREE futures trading demo today!