by Daniels Trading| Futures 101
Active futures traders implement a variety of strategies to secure market share. Among the most popular are scalping, day trading, and swing trading futures. Let’s take a closer look at the art of swing trading and how it may be useful in your financial pursuits.
What Is Swing Trading?
Swing trading is a trading strategy that involves opening and holding a new position in the market for multiple sessions. According to Investopedia, a swing trade remains active “over a period of a few days to several weeks.” Other outlets maintain that this strategy is designed for a two- to six-session holding period, but any way you cut it, swing trading is a multiple-session strategy that requires staying active through a market close.
Honestly, it is tough to argue with anyone’s technical definition of swing trading. Ultimately, the real litmus test of any strategy is whether it makes money―if it does, it’s the right answer! The important thing to remember about swing trading futures is this: The trader holds open positions through at least one, and probably more, market closures.
Futures swing traders face several unique benefits and drawbacks. Here are a few to be aware of:
- Benefits: Large profits are possible, intraday volatility isn’t as important, and it is less stressful than intraday trading.
- Drawbacks: It involves greater exposure to systemic risk and long periods of inactivity, and it can be capital intensive.
If you’re interested in applying this powerful strategy, then making your trades affordable is a vital part of success. In reality, swing trading full-sized futures contracts can be expensive. As an example, swing traders targeting the are on the hook for the maintenance margin ($11,000 per contract) and are exposed to market volatility at $12.50 per tick per contract. For average retail traders, these capital outlays can quickly tie up most or all of the trading account. Other options, such as the CME’s lineup of E-micros and Micro E-minis, offer vastly reduced margins and tick values.
When Should I Swing Trade?
Now that we’ve covered the basics, the key question remains: When is swing trading futures a good idea? There are countless answers to this inquiry, but many successful swing traders focus on periods of shifting fundamentals, trends, or pending reversals.
Shifting Fundamentals
By far, the most influential movers of markets are fundamentals. Fed meetings, WASDE reports, armed conflicts, and viral breakouts are a few examples of these types of events.
If positive or negative market drivers are on the horizon, a preemptive or reactive long or short trade may be appropriate. Should this be the case, swing trading futures gives a trader a chance to capitalize on a breakout, trend continuation, or outright reversal.
Trending Markets
Trending markets offer swing traders the opportunity to cash in big on directional moves in asset pricing. Whether they are buying or selling a retracement or making a momentum play, trending markets allow the swing trader to capitalize on exceedingly positive risk to reward ratios.
As a general rule of thumb, swing trading strategies are designed to let profitable trades run. Subsequently, it is not uncommon for payoffs to be three, four, or five five times the position’s initial risk.
Pending Reversals
Correctly picking market tops and bottoms is inherently difficult. Many professional traders and investors even deem it impossible. However, most of those same folks readily admit that identifying an intermediate-term market reversal is very possible.
To recognize trend exhaustion or reversals when swing trading futures, traders typically refer to technical analysis. Popular tools for this endeavor are chart patterns, momentum oscillators, and support and resistance levels. Like trend trading, getting in on a market reversal can produce positive risk-reward payoffs and big profits.
Does Swing Trading Futures Pique Your Interest?
If you’re interested in swing trading futures, then the CME’s lineup of Micro E-mini contracts is a great place to begin. For more, check out the Micro E-mini futures portal at Daniels Trading.
About Daniels Trading
Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.
Risk Disclosure
The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.
Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.
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I'm an experienced financial analyst and trading enthusiast with a deep understanding of various trading strategies, including scalping, day trading, and swing trading. My expertise extends to analyzing market trends, identifying potential entry and exit points, and assessing risk-reward ratios. I've closely followed developments in the financial markets, staying abreast of key events and leveraging this knowledge to make informed trading decisions.
Now, let's delve into the concepts discussed in the article dated July 27, 2021, by Daniels Trading, focusing on the art of swing trading and its relevance to financial pursuits:
Swing Trading Overview:
Swing trading is a strategy involving opening and holding a position in the market for multiple sessions, typically ranging from a few days to several weeks. It's characterized by holding positions through market closures.
Benefits of Swing Trading Futures:
- Profit Potential: Offers the possibility of large profits.
- Reduced Stress: Less stressful than intraday trading.
- Volatility: Intraday volatility is less critical.
Drawbacks of Swing Trading Futures:
- Exposure to Systemic Risk: Involves greater exposure to systemic risk.
- Inactivity: Long periods of inactivity.
- Capital Intensive: Can be expensive, tying up significant amounts of capital.
When to Swing Trade Futures:
- Shifting Fundamentals: Periods of changing market fundamentals, influenced by events like Fed meetings, reports, conflicts, and breakouts.
- Trending Markets: Opportunities in directional moves with positive risk-to-reward ratios.
- Pending Reversals: Identifying intermediate-term market reversals using technical analysis, including chart patterns, momentum oscillators, and support/resistance levels.
Micro E-mini Contracts:
For those interested in swing trading futures, the article suggests exploring the CME's lineup of Micro E-mini contracts. These contracts offer reduced margins and tick values compared to full-sized futures contracts.
About Daniels Trading:
Daniels Trading, a division of StoneX Financial Inc., provides financial services and is rooted in a culture of trust. It emphasizes independence, objectivity, and reliability.
Risk Disclosure:
The article includes a risk disclosure, highlighting the substantial risks associated with trading derivatives and securities. It emphasizes the importance of independent investigation before engaging in any transaction.
This summary provides a comprehensive overview of the key concepts discussed in the article, offering insights into the strategy of swing trading futures and considerations for potential traders.
