Futures trading is a process fraught with loss and pain. Its dangerous because the average Joe is just drawn in by the prospects of huge profits but neglects to fully examine the risk he is opening himself too. One should fully understand the Good aspects and the ugly aspects associated with trading futures, before jumping into it. When you understand what you are up against, it makes it much easier to formulate an effective battle plan.
The futures market is huge in that at any given time there are several markets that are always in full blown bullish phase, others in a bearish phase, others trending sideways, others bottoming and finally some in the topping process. This means that once you have the right tools, it’s a lot easier to find potentially new trades in these markets simply because there are so many of them. Equities for the most part trend in the same direction. Yes here and there you have spots of strengths, but one has to find these strong sectors and then look for strong plays in within those sectors. With the futures markets, one can simply skim across the different segments and immediately spot potentially new buys or sells. The great thing about the futures markets are that if you want to be a perpetual bull or bear you have the chance because all these markets work independently of each other for the most part; hence all one has to do is look and wait for the right time to enter. For example, you could be a bull and just have played the following markets one after the other in the last 15 months. The US dollar, then oats, then corn, then wheat, then oil, natural gas, cocoa, cotton, coffee, etc. and you would never have to be a bear. You could in effect do this indefinitely as there are so many markets to play. For example, right now certain markets are pulling back and will soon start bottoming, providing the astute bulls with lovely long term entry points. On the same token, the greedy bears will be setting themselves up for slaughter, as it is incredibly stupid to short a market that is oversold and showing signs of putting in a bottom.
This does not mean that the equities markets are not worth playing; indeed nothing could be further from the truth. Incredible gains have been made and stand to be made from the equities sector. What we are just stating is that once you are disciplined and have adjusted to the volatility of the futures markets, they are in some degree easier to analyse because you are looking at the same markets again and again and this then provides one with the ability to develop an intuitive sense of direction. When you examine corn it’s the same market that you are looking at again and again; the same goes for cocoa, cotton, gold, etc. However with equities first you need to identity the sector then look for plays and a stock that’s good today might not necessarily be good tomorrow. Hence one you master the two most important factors of trading which are discipline and patience the futures markets do indeed provide one with the ability to develop what we would like to call an intuitive feel that for the most part is lacking when on examines stocks. In the equity sector this is reduced to indices and as of recently one can apply this to ETF’s however not all of them have sufficient data. Since most traders cannot master these two critical components of trading they can never enter the futures arena and if they do they usually get killed immediately. Even when you are a disciplined trader you have to understand how to incorporate these skills into the futures markets and not simply assume that the methods you used in the equities markets will work. For example one of the main adjustments you have to make is to accept that these markets are very volatile and also you have to train yourself to deal with this massive volatility. Traders that do not adjust for this will simply get killed here. Hence being a disciplined and patient trader in the equities markets does not mean you will succeed here; in reality, most fail because they have not adjusted their skills to take into consideration the very different nature of the futures markets.
In no other market are your skills of endurance tested as much as they are here. Beginners should focus on the markets where the margin requirements are lower and where the draw downs are less. Hence avoid natural gas, Palladium and to some degree the oil sectors. Oats, corn, wheat, cocoa, cotton, coffee, sugar, orange juice, pork bellies, certain currencies (look under margin requirements below for more info), etc. do not require huge margins plus the potential drawdowns are lower. The risk to reward ratio in many cases is higher then playing the very fast moving natural gas sector. The natural gas markets are only for experienced players who have the money to play in this sector and who can deal with huge swings of up to 20k on each side before the main move begins. If you cannot do this, then you must stay out of this market.
One of the best ways to learn futures is to open up demo account which enables you to trade in real time but without risking the capital. Get a feel for the contracts and the markets and then slowly start to venture into the real world. There is no rush as these markets are going nowhere so take your time and make sure you understand how these markets work.
Some Basic Resources
Futures contract and margin info
Places you can open a demo account
Futures is not for everyone, however, should you decide to venture into this arena, we do provide some futures trades in the Market update service. The goal there is to look for the big trades such as the top the Japanese Yen, and Gold put in August of 2011 and the sell signal issued at that time has been valid as of May 2015. The same applies to the Top the Euro put in 2011 and the bottom the dollar put in 2011. The instructions were then to use sharp rallies to continuously short the Euro and strong pullbacks to open new longs in the dollar; these instructions were valid as of May 2015. We can accurately make such accurate predictions with the help of several of our most important proprietary tools, the most important of which is the Trend Indicator.