Profiting In Futures With Trading Systems: Day-Trading Timeframe
When it comes to choosing which futures trading system to purchase, the question of trading timeframe often comes up. Consider the three main timeframes: long-term, swing trading, and day trading systems. This article will explore day trading systems and their positive and negative
There’s one thing that all day trading systems have in common: they do not hold positions overnight. This means that before the end of the closing bell for the regular session, any open positions will be closed. The end of the regular trading session (varies by market) is marked by the closing bell, and it generally occurs around 3:30pm Central time.
This means lower margin rates too, since most futures brokers provide day trading margin rates that are less than the exchange minimums. This extend a trader’s leverage, and this increased leverage allows him to trade more contracts from a given account size.
Day trading systems are very attractive to many traders because of this one unique feature. The idea that no matter how the day’s trading goes, your position will be flat (“flat” refers to not having any position, long or short) at the end of the day compels many traders to choose these kind of systems over other choices.
By trading a day trading system, you are limiting risk. Because the system holds no positions overnight, the trader has removed the possibility that overnight prices going against him. This not only reduces risk on a per trade basis, but on a portfolio basis as well. And reducing risk is essential to a trader’s ability to remain profitable.
This limitation of risk, does come at a cost. The cost is prematurely closing a trade that could have been very profitable before it had the chance to develop. It varies by market, but good trades can take days to develop, and when using a day trading system, the system will exit every trade, even great trades, at the end of the day no matter what.
Another drawback of day trading systems is that they often have lower average trade net profit. Unfortunately, slippage and commissions are magnified in day trading systems versus swing or long-term systems. Because of this it is vital that you choose a futures trading system that has already factored in commissions and provided for a generous amount of slippage.
If the day trading system can deal with the previously mentioned issues robustly, then you have quite a wonderful way to trade futures. A solid, well-constructed day trading futures system can give large profits in a small amount of time. This is because the futures markets allow for increased amounts of leverage, which allows traders to turn even small price fluctuations into large gains.
Depending on the system, it may enter the market only once a month or once a week, or may trade many times per day. Most professionals agree that, unless you have access to high-tech algorithmic infrastructure that allows trade executions in milliseconds, you’ll be doing yourself a favor by avoiding systems that trade more than a few times in a day. This is because after accounting for slippage and commissions, there generally are only one or a few good trades in a day in any given market. If we try to make trades up when they aren’t there, we usually get hurt.
Your best bet is to look for systems that have already factored in slippage and commissions in their results, and systems that trade less than 3 times per day (a few times a week is perfect) on average. Once you find a system that’s a match, then just apply to it your money management skills, and you’re on your way to reaping the rewards!