Futures are financial assets that attract many professional traders and retail traders alike. The explosive leverage can turn 2-hours a day of computer effort into a full-time job and very lucrative income.Imagine a life of freedom where you can stand up from your desk after just two hours of work having made you daily profit target, whatever it may be. In the following blog we’ll discuss out two favorite futures trading strategies. We’ll go into depth on how TRADEPRO Academy uses them day in and day out to hit our daily profit target!
First let’s go over futures contracts.
Futures Introduction and Explanation
Futures are a derivative asset. Usually when people think of derivatives, they think complexity associated with a lot of risk. It’s only risky if you don’t manage your risk and are not educated.
The financial contract that is the futures contract obligates two parties to either sell or buy an asset at a future date, which is predetermined and predetermined price.
At TRADEPRO Academy we trade the crude oil and equity market futures. The reason why I bring this up is that we trade futures for speculative purposes to make money. And out of the two futures types mentioned, only crude oil takes physical delivery. That is assuming you hold the contract position into expiry (not advised).
While the equity futures are cash settled. At expiry, your position is liquidated and you account is either credited or debited depending on the entry and position.
Trading futures for speculation of gains negates the contract obligation in the sense that you will not have to deal with this because you are not going to hold the contract to expiry. At least we hope you don’t! Make that your TRADEPRO promise!
Futures can also be used for hedging positions.
Full disclosure, trading futures can hold a lot of risk and can be subject to large losses. This will only be the case if the trader is not disciplined and does not manage their risk.
What you need to master before trading:
- Trading Psychology: The mindset is one of the most important tools in trading futures or trading any market. Don’t fall victim to yourself and hone your trading psychology with the TRADEPRO Academy psychology course in the Elite Package.
- Futures Strategy Plan: A plan is pivotal to any successful venture. What’s even more important is to follow that plan to a T. Know you plan so well that you do not fail to execute when the opportunity arises.
- Risk Management: Managing risk is a traders first job. The money earned is the award for managing risk. Learn to cut losers quick and take larger profits without taking too much risk. There is no such thing as risk free in trading, but there are such things as high probability trades. Let TPA show you the possibility of opportunity.
Futures Trading Strategy 1-The pullback
We’ve teased you long enough, in the following section we are going to get into the first futures trading strategy that we use most often and can be a high probability strategy.
The pullback futures trading strategy is very simple in nature and very in sync with market momentum.
The idea of the pullback futures trading strategy is identifying the trend and finding an area to jump in. This can be used in any futures market, whether its S&P 500, Crude oil or Nasdaq.
How do you identify the trend?
The first step is identifying if the market is printing higher highs/higher lows, or lower lows/lower highs.
If the market is moving in a range, then the pullback is selling the top and buying the bottom.
If the market is moving in higher highs, and higher lows, then the bulls are in control. This would constitute in a buy the dip trade idea.
If the market is moving in lower lows and lower highs, then the bears are in control. This would constitute in a sell the rip trade idea.
The premise of the pullback is waiting for momentum to take a support or resistance level out and pulling back into said broken level.
Below we have example of both the bull side and the bear side for the pullback trade idea.
Let’s qualify the pullback trade idea on the bear side from start to finish.
Pullback bull trade from start to finish
We go into depth on everything futures in our PRO and Elite package, in which we teach the pullback trade idea from start to finish. Not to mention implement it everyday live with our traders in the trading room. Check us out here.
The S&P 500 (ES) futures open at the 2883.25 level and we drew a “line in the sand” for the downside based on strong support structure. So far throughout the day the downside has been the right-side printing lower highs and lower lows.
Line in the sand 1 denotes the area under which price needs to break for the downside to really take control. Once price breaks convincing below the level by a few points and pullbacks we are looking for the short trade.
Shorting the ES futures on the pullback into that level is a high probability trade because it’s in the direction of the trend where the big money is taking price. The line in the sand level is 2878.
So we want to see the retest there and continuation lower.
Notice it does not retest back to the tick, it never does. What helps us here is the rotations on the head fake above that level and continuation lower.
If you wait for price to settled down and qualify the trade based on other criteria explained at TPA. You might catch the 2879 on the way down with the target initially at the previous peak lower at 2873-74. That is at least a 5 point move on the ES futures. 1 contract on that move is a USD $250 gain in just minutes.
The red lines are the market moves of breaks of levels and pullbacks for the continued trend short.
There is also a second line in the sand, I want you to justify why that is a line in the sand to break!
Futures Trading Strategy 2- The fade
The fade trade idea, this may be the most fulfilling trade strategy a trader can take. The rush of taking a fade at the end of a trend and catching it, then riding it brings a burst of euphoria and adrenaline in a trader’s heart. This is a riskier trade idea because it is so contrarian.
What is the fade?
It is taking a position against the trend after having qualified the exhaustion of the trend. Why is it so fulfilling to traders? Because being right and profitable is an amazing thing in trading. Being able to take the large risk and having the guts to and being rewarded for it is a special feeling.
The fade trade can be the pullback portion of the pullback trade when the initial impulse move gets exhausted. When the move is exhausted there is usually a move in the opposite direction, that is the fade. Because you are fading momentum.
The fade can be either on the bull side or the bear side. Once you have identified the direction of the trend, the next step is to identify the exhaustion of the move and take a trade in the opposite direction of the trend.
For example, if the current trend is to the upside, the fade idea comes from the exhaustion of the upside move and the possibility of the short at the top of the move. The short should ideally come back to the support that the was previous resistance. Let us show you what we mean!
Below is a guide from start to finish of the fade trade idea.
Fade bull trade from start to finish
As we described above, the fade can be identified as the pullback from the trend fade. So step one is identify the trend. We’ll be using the same example as the pullback for this.
The trend is a bear, so the fade would be taking a long when the downside gets exhausted.
The first thing to notice in the chart below is the lower horizontal blue line, that was a line in the sand for the bear structure continuation. Once we broke that level and plunged lower, there was a chance for the breakout short. However, if you did not manage to catch that, the opportunity for the fade long arises.
So how do you spot the exhaustion for the long idea fade? There are several ways, one trick is the 10-point drop followed by a 4 point reversal. This is not a guaranteed, however it does occur.
That is the less scientific approach. For a more technical approach you will notice the velocity of the down move decrease, volume to the downside decrease as it comes into a support level. This is when you begin qualifying the long fade.
At this point, order flow is your friend. We won’t get too much into order flow here. The premise of using order flow to qualify the fade is watching the footprint and inventory on the DOM.
Does the footprint stall and are there buyers coming in at a potential bottom? Does inventory hold? Meaning are the bids to the downside holding support without getting filled. If yes to both questions. Begin to qualify the fade long.
Where can you catch the fade? All the above mentioned happen around the 2856 level on the ES futures. What is the target? The previous line in the sand that is now resistance. Which is 10 points away at the 2866. A 10 point move on the ES on 1 lot is a $500 gain.
Now with that being said, the fade is supposed to be a fast take profit trade, as the trend is usually strong, and the fade occurs from stuck sellers in this case at a bottom. The fade happens by running their buy stops back. In most cases it is 2-3 points of movement.
The fade is a riskier trade, so be cautious. TRADEPRO Academy does not recommend this trading strategy for futures traders that have not experienced consistency with the pullback for at least 1 month.
To conclude, these two futures trading strategies are very profitable if used correct. The pullback strategy is of higher probability for the newer trader and the fade is a fast profit trade if you have the experience and discipline to back it.
There are risk associated with trading and a profitable trader must be willing to accept risk for his or her returns. This comes with strict risk management, patience, diligence and discipline.
For more information on trading these set ups, and order flow to find the exhaustion of the move, we have just the resource for you.
TRADEPRO Academy offers futures education and a live trading room where you can interact with the top mentors to better your futures trading.
If you want to join us in our live trading room, check out the Day Trader package here >
If you prefer to trade more passively, check out our newsletter, trade ideas and live analysis in the Swing Trader package here >
The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.