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5 Strategies for Successful Futures Trading

Created on 30 Nov 2023

Wraps up in 3 Min

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Updated on 01 Dec 2023

In the dynamic realm of financial markets, where risk and opportunity converge, futures trading stands out as a captivating avenue for investors and speculators alike. Futures contracts serve as agreements between two parties to transact a specified asset at a predetermined date and price, offering a unique platform for hedging, speculation, and portfolio diversification. As the allure of futures trading continues to grow, it becomes imperative for participants to arm themselves with effective strategies that can weather the volatility inherent in these derivative instruments.

However, you need to have appropriate trading strategies in place to trade this exciting derivative instrument. In this article, let’s discuss the top 5 strategies for trading futures that can help you navigate your trades efficiently.

1. Trend Following
2. Breakout Trading
3. Pullback Strategy
4. Spread Trading
5. Going Long and Short 

Let us guide you through each of them, providing a brief yet detailed overview for better clarity.

1. Trend Following

This strategy involves purchasing futures when the price increases and selling them when the price decreases. However, if the trend reverses, it can potentially lead to losses.

Trend following is all about attempting to capture long-term moves in the financial markets, either up or down.  You can use tools like looking at charts, checking how fast prices are changing, and moving averages to figure out if a market is going up or down.

2. Breakout Trading

Breakout trading is a widely used day trading strategy. A breakout usually happens when the future’s price moves outside a specific trading range. 
When the price breaks the resistance levels, you buy the contract. When the price breaks out below support levels, you sell the same. In breakout trading, volume signals, timing of the trade, and volatility are essential factors to consider.

3. Pullback Strategy

This is a very popular strategy in futures trading, where you try to determine the market trend (uptrend/downtrend) and wait for a temporary pullback to enter. 
You may enter long positions when the price breaks the resistance level and return to the uptrend direction once it has broken the resistance level. 
During a downward trend, if the price breaks below the support level and then reverses and comes within the support level, you can enter into a short position.

4. Spread Trading

In this strategy, you need to buy and sell two different futures contracts simultaneously. By taking a long position in one contract and a short position in another, you expect to profit from price differences. 
The best part of this futures trading strategy is that it lowers your risk because it is also a hedging technique. Spread trading is not affected by market volatility and has lower margin requirements.

5. Going Long and Short

Going long is the simplest futures trading strategy, where you buy a futures contract with the expectation that the underlying asset’s price will rise in the future. This technique is predicated on a bullish market trend. The prices may rise in the direction you expected, enabling you to sell your futures contract and earn decent profits.
In contrast, going short is a strategy where you sell a futures contract with the expectation that the price of an underlying asset will decrease in the future. Short sellers want full leveraged returns on assets expected to decline.

The Bottom Line

Futures Trading can be very lucrative if you follow the right trading strategies. Each strategy has its pros and cons, so select the one that best suits your goals and market conditions. You should first focus on one strategy and try to master it. It should be done along with the proper risk management and the right futures trading platform, such as Dhan, which can provide you with advanced tools for trading.

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Pratiksha Mahawar

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Sugar, spice & everything nice, that's what Pratiksha is made of. This proactive human makes difficult things look easy through her amazing skill of managing everything, be it professional or academic. Let’s not forget how this “Potterhead” makes room for her ‘occasional writing’ hobby while she leads marketing activities at Finology. 

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