Stock Market Futures Investing: Navigate for Success or Risk Loss

Stock Market Futures Investing: A Blueprint for Success and Risk Mitigation

Updated Aug 2023

Futures trading is a process fraught with loss and pain. It’s perilous because the average Joe is often lured by the prospects of substantial profits but tends to overlook the risks he is exposing himself to. One should thoroughly comprehend both the positive and negative aspects associated with trading futures before diving into it. Understanding the challenges you face makes it considerably easier to devise an effective strategy.

The futures market is vast, with multiple markets simultaneously experiencing various phases. Some are in a full-blown bullish phase, while others are bearish, some trend sideways, some reach bottoms, and some are in the topping process. This means that once you possess the right tools, it becomes much simpler to identify potential new trades in these markets simply because there are so many of them. Equities, on the other hand, largely trend in the same direction. While there are occasional pockets of strength, one must locate these robust sectors and then seek out strong opportunities within them. In the futures markets, you can easily scan across different segments and promptly identify potential buying or selling opportunities.

The Advantages of Futures Investing

The remarkable aspect of the futures markets is that if you wish to maintain a perpetual bullish or bearish stance, you have the opportunity to do so because these markets largely operate independently of each other. Therefore, all one needs to do is observe and patiently await the right moment to enter. For instance, you could adopt a bullish strategy and sequentially engage in the following markets over the past 15 months: the US dollar, followed by oats, corn, wheat, oil, natural gas, cocoa, cotton, coffee, and so on, without ever needing to take a bearish position. In essence, you could continue this approach indefinitely because there are numerous markets to participate in.

At present, certain markets are undergoing retracements and will soon begin to bottom out, offering discerning bulls attractive long-term entry opportunities. Conversely, those who adopt overly bearish positions will be setting themselves up for losses, as it is unwise to short a market that is oversold and showing indications of reaching a bottom.

Equities vs. Futures: A Comparison

This doesn’t imply that the equities markets are unworthy of consideration; quite the contrary. Remarkable gains have been achieved and are still attainable within the equities sector. What we are emphasizing is that once you have cultivated discipline and acclimated to the volatility of the futures markets, they, to some extent, become easier to analyze because you repeatedly examine the same markets. This repetitive exposure allows you to develop an intuitive sense of direction. When you assess corn, it’s the same market you are scrutinizing over and over again; the same principle applies to cocoa, cotton, gold, and so forth.

However, with equities, you initially need to identify the sector and then search for opportunities. A stock that performs well today may not necessarily do so tomorrow. Therefore, once you master the two most crucial aspects of trading, discipline and patience, the futures markets indeed offer the opportunity to develop what we might refer to as an intuitive understanding that is often lacking when dealing with stocks. In the equity sector, this is somewhat simplified to indices, and more recently, it can be applied to ETFs. However, not all ETFs have sufficient historical data. Since most traders struggle to master these two critical elements of trading, they often cannot venture into the futures arena, and if they do, they frequently encounter immediate setbacks.

Stock Market Futures Investing: Winning with Discipline

Even when you are a disciplined trader, you must understand how to adapt these skills to the futures markets and not merely assume that the methods you applied in the equities markets will suffice. One of the primary adjustments you need to make is acknowledging that these markets are highly volatile, and you must train yourself to cope with this substantial volatility. Traders who fail to adapt to this aspect will likely face significant challenges. Therefore, being a disciplined and patient trader in the equities markets doesn’t guarantee success in the futures markets. In reality, most traders struggle because they haven’t tailored their skills to account for the distinct and very volatile nature of futures markets.

Avoid These Futures Markets When Starting Your Investment Journey

In no other market are your endurance skills as rigorously tested as they are here. Beginners should concentrate on markets with lower margin requirements and less pronounced drawdowns. Therefore, it’s advisable to steer clear of natural gas, palladium, and, to some extent, the oil sectors. Oats, corn, wheat, cocoa, cotton, coffee, sugar, orange juice, pork bellies, certain currencies (see margin requirements below for more details), and the like don’t demand substantial margins, and the potential drawdowns are comparatively lower. In many cases, the risk-to-reward ratio is more favourable than in the highly volatile natural gas sector. Natural gas markets are suited for experienced traders with the financial capacity to participate and can withstand significant swings of up to $20,000 on each side before the primary move initiates. If you cannot handle this, it’s best to avoid this market.

One of the most effective ways to learn about futures trading is to open a demo account, which allows you to trade in real time without risking your capital. Gain a sense of the contracts and the markets, and then gradually transition into the real world of trading. There’s no need to rush, as these markets are here to stay. Take your time and ensure you have a solid understanding of how these markets operate.

Essential Resources for Stock Market Futures Investing

Information regarding futures contracts and margin requirements.

Futures contract info and specifications

specifications info from barcharts.com

Places you can open a demo account

Futures online

Futures

The Future of Wealth: Stock Market Futures Investing

Futures trading is not suitable for everyone. However, if you decide to explore this arena, we do offer futures trades through our Market Update service. Our primary objective is to identify significant trades, such as the peak in the Japanese Yen and Gold in August of 2011. The sell signal issued at that time has remained valid through May 2015. Similar principles apply to the peak in the Euro and the bottom in the dollar, both occurring in 2011. The guidance provided was to utilize sharp rallies to consistently short the Euro and leverage strong pullbacks to initiate new long positions in the dollar. These instructions remained accurate as of May 2015. We are able to make such precise predictions with the assistance of several of our most crucial proprietary tools, with the Trend Indicator being the most pivotal among them.