Entries Tagged 'futures trading strategies' ↓

Here we are going to look at three popular Forex trading strategies which the bulk of all new traders use and they are all doomed to failure so make sure you avoid them or you will lose to, here they are.

Let’s take a look at all strategies which involve making no effort and buying the vast amount of Forex Robots and Expert Advisors.

1. Automated Predictive Software

How many cheap hundred dollar systems do you see online which tell you they can make you an income for life with no effort, because they have software that predicts the future? There are loads of them, they all lose and there predictions, always turn out as accurate as your horoscope.

You cannot predict markets in advance because humans are not predictable!

People are creatures of emotion and not logical, if you could predict the future there would be no market, as we would all know the price in advance. Avoid these cheap get rich quick systems, you don’t win in a market were 95% of traders lose by making no effort and spending the cost of a good night out.

2. Any Forex Scalping or Day Trading Strategy

Any system based on the above will lose long term – think about what you have to to win:

You have to decide what countless millions of traders will do in advance, all with different skills, aims objectives and emotional make up and to make it even harder you have to decide what they will do in a few minutes or hours.

All volatility in short term time frames is random therefore, you cannot get the odds on your side and you can’t win. Avoid these short term trading strategies.

3. Fibonacci Systems

This has to be one of the most amusing and dumb ways to trade Forex, this is no disrespect to Fibonacci but even he would be surprised how his theory has been hijacked by the far out investment crowd.

This theory had nothing to do with Forex and traders who trade it, give you mystical retracements you can buy into where prices are supposed to hold to some universal law – so do they work?

Sometimes but so will any percentage retracement. This theory is supposed to have found the hidden order of the universe but it hasn’t quite figured it out in Forex! Do not be taken in by people selling you systems, based upon this theory.

If you want to Win at Forex

Get a simple Forex trading strategy, based upon trading the odds which doesn’t predict but executes its trades on the reality of price change and you can enjoy long term currency trading success.

There are some things you should consider before using an auto Forex system trading strategy. There are benefits and pitfalls to using automatic Forex systems. They may help you with positive advice as to when to enter and exit a trade. Some systems are riskier than others though, and if you don’t use proper settings you increase you risk as well. Here are some things you can use to evaluate an auto Forex trading system.

Even though past results are never a guarantee of future results, it says so on every Forex disclaimer on the web, you can still learn a lot just by looking at how well the auto Forex system trading strategy is working for existing users. It is also a wise idea to gain the knowledge of what the maximum drawdown has been in the past for the system.

Do you know the win-loss ratio? Not to be confused with profit-loss ratio. You should also look at that as well. It is easy to make the mistake of confusing the two ratios, but a good win-loss ratio is not necessarily a profitable one. For example, if the strategy you are researching has a nine win to one loss ratio, that might seem really good, but if the loss is a huge drawdown then that is not good. The nine wins could be small and the loss could be big, resulting in a riskier system. You should find out what both of the ratios are.

What is the consistency of the auto trading system? You need to know if it is delivering profits on a regular basis.

When using an Auto Forex system trading strategy, make sure that your time zone settings are calibrated accordingly. This is a major factor that should not be overlooked. You should also take into consideration your lifestyle. Will you be there to monitor each trade or will you be out and about, checking on it every so often? You should change the amount you are willing to risk accordingly.

Your leveraging will be what determines how much you are willing to risk, or gain in reward. Leveraging can be powerful for multiplying your profits, but at the same time there comes the risk of multiplying your losses as well.

If your auto Forex system trading strategy requires the use of stop-loss or trailing-stop or take-profit levels, and you have a U.S. broker, it might be wise to inquire about setting up a platform from another country, maybe the UK. Let me tell you how I found out, I had a profitable trade that I wanted to close, but couldn’t, I ended up needing to call the trading desk after it moved to a loss. This is because of the new, National Futures Association (NFA) Compliance Rule 2-43. For those that are unaware, you can no longer use these types of limits on American brokerages. In order to close your trade you will need to enter a contradicting trade to cancel it out. For example, if you wanted to close a buy order on the pair USD/CAD, you would need to execute a sell order for USD/CAD. You will want to contact your broker, or the manufacturer of your auto Forex trading system to find out if it is compatible with the new rule. They may even have an upgrade that you need to get in order for it to be compatible.

If you properly assess the risks, and adapt, it can be very beneficial to use an automated Forex system. You have just learned what to look for in an auto Forex system trading strategy. With what you have learned you should be able to use it to your advantage with your trading strategy. Bear in mind that even a 100% track record does not guarantee future success. Just remember to do your research before implementing any auto Forex system trading software.

Developing forex day trading strategies can be very time consuming. I know for myself, I had a lot to learn and a lot of tasks to figure out. The best way of doing this is building into your routine the tasks that successful people do. You have to able to identify trends and just be a more instinct driven trader because that’s how you get successful.

You have to understand that the whole point of trading and investing is to get your money working for you. You put it in the market, so that it earns you a return and typically a nice return you can spend. The problem is too many people leave things in the market without them performing. If your trade is tanking, you have to cut your losses and move on. If you’re going to hold onto the trade and hope it goes up, it could take years. That’s a lot of time to have your money not working for you. Cut your losses and reinvest it always.

Trends are n important part of staying ahead of the market and making money. Being able to anticipate where a currency will head in the future is how you’re going to make all your money, so this is the behavior you want to learn. There are many different ways of doing this in forex day trading and I can suggest a few. The news is an excellent source of economic information that ends up filtering to the market. You can also use automated software which does complex analysis to find trends.

I’ve used this simple concept that must of saved me from $1000 in losses; a stop loss point. Before you make a trade decide if the trade goes down you’ll sell it at “x” price. That’s it. It is an extremely objective way to cut your losses without having to worry about your emotions being invested.

As you work to develop your own forex day trading strategies, you need to be always thinking of your bottom line over the long term. Often times you’ll feel like you’re not making enough, but it all pays off in the long run.

Foreign Exchange Currency Trading

Current monetary policy allows for free and open exchange of currencies at market rates for most US and European trading partners. In essence, by looking at the exchange rates, and by prognosticating on foreign and international news, foreign exchange traders are making gambles that currency valuations will change in the direction they’re anticipating in the future.

Where the gamble comes in is predicting the time frame. Billions of dollars are run through currency exchanges every day, trying to make money on changes in the market that come with 2 seconds of notice for a fraction of a percentage point – and if you’re the sort of person who can handle that kind of job, you can make a LOT of money at it with properly honed instincts.

A smaller scale foreign exchange currency trading strategy is to do positional buys. For example, right now the Euro is slightly lower than its historical average against the dollar. If oil prices rise, it’s likely that the dollar will drop against the Euro, slightly. If you invested a thousand dollars into Euros at $1.20 per Euro, you’d have 833.33 Euros. If the Euro rose to $1.25 per, your 833.33 Euros would sell for 1040 dollars and some change. Five and six cent shifts in the dollar to Euro exchange rate can happen weekly; the trick is knowing how to play them, and to watch long term trends in addition to the short term bustle. One of the significant advantages of buying foreign exchange investments is that you’re always guaranteed to have something left; it minimizes your risks of a catastrophic loss. It can also get you a rate of return of 5 or 6% in a month, as opposed to a year. Of course, it can also depreciate in value by 5 or 6% in a month as well…

Spotting trends is what separates the good forex traders from the mediocre ones, though there are some tricks of the trade.

The first, if performing a buy-and-hold strategy is to make sure that whatever currency you’re buying is held in a mutual fund in its native currency exchange – this smoothes out any downturns in the exchange rate, and can become an added bonus when you compound the interest with the difference in the exchange rate when you’re done. This does require a substantial initial investment – usually $5,000 to $10,000 or more.

The second is the stop-loss order; in essence, this says “Stop the trade if the price changes outside of the following band”. Given the automatic arbitrage systems, this is useful to minimize risks.

In terms of trading volatility, you need to decide if you’re going to be a day trader, or a position trader. If you’re looking at making this a career, day trading is the way to go; it’s very easy to make (and, alas, lose) fortunes doing rapid trading on the currency exchanges. You’ll need to be well versed in the rules for individual exchanges, when they open and close (currency exchanges are mostly based out of London, and Singapore’s exchange is important for the Asian market). You’ll also want to keep well versed not just on financial news, but world events. Changes in oil prices, trade policies, union rules, even fashion trends, can foretell trends on how currency exchange rates will move.

Position trading (as described above) is better for single investors working the markets for themselves.

An important consideration on all foreign currency exchanges is to remember to buy low and sell high. Don’t cling to investments for patriotic or sentimental reasons; that’s the surest way to lose your shirt. It’s also important to diversify – take your profits out of commodity and currency exchanges and put them aside in something more stable, to minimize your risks. Also, focus on multiple currencies, and look for currency exchange index funds, which tend to minimize the overall risks of this investment strategy.

Are you looking to outperform the market and optimize your profits but are not sure how to pick the right stocks? Has investing become a chore? Do you find yourself investing in hot stocks after they have made their big move? Would you like to learn how I increased my portfolio by over 400% in under 7 years? Do you want to discover how I have outperformed the market over the past 3 years by a margin of 5 to 1?

Do You Hate Research? . . . I do!

I have always wanted to find an investment strategy that made sense. An investment strategy in which I do not need to know the intricacies of the market, predict market trends or follow specific stocks. How can I get the inside information of what is hot before the rest of the market knows? I can’t. Nor do I need to.

Plus, I don’t have that kind of time to commit to in-depth research. Like you, I have a regular job that I need to devote my time to. I am not a day trader; nor do I want to spend all of my free time on the computer doing research. Always following the stock market and getting stock quotes is not how I want to spend my free time.

I Avoid Individual Stocks . . . they are too unreliable!

Everybody wants to buy low and sell high. While millions of people do make money this way (and many millions loose money), I have found an easier and more effective way to use the market to my advantage. I do not trade in stocks. I do what I can to avoid individual stocks. And I consistently beat the market . . . month after month after month.

If not stocks, what’s the alternative?

Like many people, I got heavily involved in the stock market in the mid to late Nineties. Tech stocks were going through the roof and I, like everybody else, wanted a part of the action. It seemed an easy way to make money. Everybody was getting rich. You did not need a special investment strategy to beat the market.

During this time, I engrossed myself in the financial markets. I wanted to learn as much as I could without giving up my day job. I was trying to find the next best tech stock, IPOs and the occasional pre-IPO offering. But it was not until I discovered options trading that I discovered an investment strategy (The Yager Trading Strategy) that can work in any kind of market . . . Bull, Bear or stagnant.

That’s right…OPTION trading!

And I am not talking about stock options or writing covered calls. Options trading…I started selling options on S&P futures, using different methods and trading strategies. And I did well. VERY well.

Between July 1998 and January 2000 (a span of 18 months), from my option trading system, I turned an initial $25,000 investment into $167,615. That’s over 670% increase. And this was not paper money where you buy a stock and it has a certain listed value. This was real, taxed income. Profits collected on a monthly basis.

Market fluctuations and volatility have diminished greatly since then…reducing the premiums. Those types of returns are no longer available, but the option trading strategy is still very sound. I still consistently beat the market. Even the years the DJIA, Nasdaq and S&P were all down, I posted more than a 22% gain.

Learn the option trading strategy or see how to make money with this strategy. I describe the strategy and show actual recent trades on www.yagerinvesting.com. The information is FREE. No subscription required. This is a method for risk capital only.

For the preceding 12 months (May ‘06 through April ‘07) this is how my strategy, The Yager Trading Strategy, performed:

DJIA……………………..20.3%

NASDAQ………………..14.7%

S & P 500………………..17.3%

Yager Trading Strategy….32.2%

Learn the strategy for FREE.

http://www.yagerinvesting.com

adam@yagerinvesting.com

When venturing into the options market, the best way to get the lay of the land is to be acquainted with at least some of the more elementary concepts. These will aid the new investor in successfully executing basic trading strategies.

Two basic terms, the call and the put, are the epicenter of the trading strategies. To buy a call confers the right, not the obligation, to buy at a price that is pre set. Conversely, puts give the buyer the right to sell at a pre set price. Options are both sold and bought, meaning that the seller grants the buyer the right and takes on an obligation to fulfill the other side of the trade.

The variations to this maneuver include:

Long Calls

The long call is the easiest to understand and is the most basic concept. MSFT (Microsoft) traded at $28 with June 31 options that were to expire on the third Friday of June. The strike price was $31, meaning that it was pre set so if exercised it had to be bought at that price.

Short (Naked) Calls

When the writer, the person selling the option, does not own the underlying stock and the option is exercised, then he or she is obligated to sell. Under those circumstances, that action is considered a naked call. Because the person is on the selling side of the contract, his position is considered to be short.

The short call status incurs the most profit by the amount of the premium if the market price of the underlying asset decreases. When the price exceeds the strike price by more than the premium, then the short position takes a loss.

Long Put

When a trader anticipates that the future market price of an asset, such as a stock, will fall before the expiration date is able to sell the stock at a fixed price. The buyer, put buyer, is not obligated to sell the stock, but he or she does have the right.

If the market price does drop below the strike price before the option expires and the decrease is more than the premium paid, then the seller profits. If the price increases or fails to drop enough to cover the premium then the trader will allow the contract to expire worthless.

Short Put

When a trader speculates that the future market price will rise, they can sell the right to sell an asset at the predetermined price.

If the asset’s market price increases, the short put position incurs a profit that is equal to the amount of the premium. This amount excludes any transaction costs and commissions. However, if the price drops below the strike price by more than the premium amount then the writer loses the money.

There are several trading strategies that are basic to the market. These strategies employ the characteristics of four basic trading positions. These strategies have one of several outcomes: pure profit plays, speculating on gaining a profit or creating a combination of speculation and hedging.

When positions move in opposite directions, it is called hedging. Hedging bears a profit less that sheer speculation, but they do compensate by offloading a certain degree of the risk.

Bull spreads and bear spreads are common strategies that can help the trader manipulate the market, depending on the market emotion. Bull spreads utilize a long call with a low strike price and combine it with a short call at a higher strike price and a short put with a higher strike price. On the other hand, bear spreads use a short call with a low strike price and a long call with a high strike price. Alternatively, the short put can be used with a low strike price and a long put can be used with a higher strike price.

There is a great deal of software on the market that can aid in these types of trades. Options trading software can offer users concrete demonstrations of the how these strategies work. They show how they behave under different assumptions regarding future prices, volume and other factors, combined with various expiration dates and strike prices to show how these different scenarios can result in a profit or a loss.

The unorganized trader is in a slightly worse position than an organized trader, but there are many tools meant for the unorganized trader that can improve returns. There are a few products out there that can turn even the most unorganized trader into an organized, profit making machine.

Trading plans

Developing a trading plan is usually the best thing that happens to an unorganized trader. Plans require a trader to become organized, putting their tools and techniques all on one piece of paper. Developing a trading plan can be a liberating feeling, relieving you from the strains of your own personal feelings, but instead backing your trading with your own proven strategies.

A trading plan planner will help solidify your trading plan blueprints into a workable strategy. Traders should be able to translate their own trading style to a trading plan that suits them best. Professional traders know what works for them, and thus, develop a trading plan around what they believe. A complete trading plan includes everything needed to produce profits right from the get go.

Risk and money management tips

Other than being unorganized with their trading techniques, unorganized traders are also prone to being reckless with their money or giving it very little attention. Risk and money management tips, such as checking positions weekly or comparing your own holdings to a sector wide industry, help keep unorganized traders interested in the markets.

Start learning, start profiting

Trading seminars put on by professional traders work to undermine the professional insider secrets of the industry. Included in many of these trading seminars is the ability to read step by step instructions on profitable strategies and unlock trading plan secrets. These also include tools to make consistent profits, along with risk and money management tip guides which are sure to help you manage your money correctly.

Know what you want

Do you want to day trade or swing trade? Trade stocks or foreign exchange markets? Work from 9:30 to 4, or work in the Asian trading, which may be graveyard shift your local time? There is much to understand from knowing what you want to do, and how you want to accomplish it. The unorganized trader is organized when he or she realizes what they want from trading and works to make it happen. Most professional traders were once unorganized traders, but over the years, became profitable through a strong investment in their own future, right into their trading strategies and abilities.

A market that is trending up should have higher peaks and higher valleys. The majority of bars should also have higher highs and higher lows. In a down trend the market should have lower valleys and lower peaks and the majority of bars should have lower lows and lower highs.

When a market is in consolidation (bracketing/flat) the price will generally oscillate in a broad range. Traders who are watching for the breakout will monitor the security for a qualified break. They may place a straddle traded to catch the move regardless of whether it breaks up or down.

There are traders who specialize in trading consolidation. I don’t however recommend it to new traders simply because they get whipsawed too much.

Reading Gary Smiths book “How I trade for a living”, I came across a reference to an interview with Donald Sliter, a top S&P floor trader. When asked about his trading strategy he had replied that it is a matter of understanding strength and weakness. When asked to expand on that, he said, “I scalp to the short side if we are trading weak to the Dow. I scalp to the long side if we’re trading strong to the Dow.” The interviewers were amazed that one of the biggest traders in the S&P pit had such a simple strategy.

For me, this reinforces the idea that as an active day trader of the futures market, it is not about developing complex, high probability strategies; it is about having simple, logical, high frequency strategies that give an edge. There are different approaches to creating an edge in trading. One that I like is to have a technique for determining the trend of the market and then looking for opportunities in line with the trend. One of the problems of trading trend following strategies is that they generate frequent losses in non-trending markets. One way to mitigate this problem is to not trade the signals from your trend following strategy, but use them as a filter for your trades.

Lets say you use a moving average (or any other trend identification approach) to measure trends; instead of buying the market when it crosses the moving average, see it as a signal to look for buying opportunities. So your strategy is to be a buyer when the market is above the moving average and a seller when the market is below the moving average. You can then use any number of techniques for generating entry signals in line with the identified trend. If, for example, you are a fan of RSI or any other oscillator, use that as your entry signal, but only take signals in line with the trend as you see it.

When the market is trending, your trend following technique will keep you on the right side of the market and your entry signal is likely to produce multiple successful trades. When the market is range bound, you will still have the opportunity to trade profitably because you won’t be trading every breakout, you will be naturally drawn to buying dips and selling rallies (in line with your trend strategy signals).

You’ve finally settled on a trading strategy. But how do you know it’s actually successful? Well, luckily, there are a few ways. Here are two:

1.) Back-Testing

Back-testing is a method of testing which will run your strategy against prior time periods. Basically, you’re performing a simulation: you use your strategy with relevant past data to test its effectiveness. By using the historical data, you’re saving a ton of time; if you tried to test your strategy by applying it to the time periods yet to come, it might take you years. The effectiveness of back-testing relies on the theory that what has happened in the past WILL happen again in the future.

2.) Paper Trading

Paper trading is a method of “risk-free” trading. Basically, you set up a dummy account, through which you can test your trading strategy with paper money. There are two methods to this: you can either pretend to buy and sell stocks, bonds, commodities, etc., and keep track of your profits and losses on paper, or you can open an account online, usually through your broker (and usually for free).

This is a fantastic way for traders to kill a whole tree full of birds with one stone. First off, you’ll learn the tricks of the trade without putting your own money at risk. Second, you’ll be able to gain some much-needed confidence when it comes to maneuvering in the markets. And third, you’ll be able to test out your trading strategy in real-time simulation.

This is probably the best way to test a trading strategy, since it doesn’t rely on historical data. On the other hand, it’s the most time-consuming strategy, since it might take weeks or months until you have enough data for a statistically relevant performance report.

When testing a strategy, keep in mind that markets change.

When back-testing, there are definitely things you need to be aware of. It’s not enough to just run a strategy on as much data as possible; it’s important to know the underlying market conditions.

Either method of evaluating your strategy will require time and effort, but both will pay off in the long run.

Day trading is the practice of buying and then selling a stock all within a single day of market activity. Day traders dabble in a number of different financial instruments, such as stocks, currencies, stock options, and futures contracts such as interest rate futures, equity index futures, and commodities futures.

It is not uncommon for a day trader to execute hundreds of trades in a single day, whereas others might only make a few trades. Some look for swings in prices that may last a few seconds or a few minutes. Such a trader literally will buy a stock and then sell it within a few minutes, or sometimes within 30 seconds or less.

Others look for changes in momentum and will hop in at the beginning of an upswing and then ride it out until the upswing is over. This is known as momentum trading. Another strategy that day traders often employ is called position trading, where they look for a stock that is likely to experience a significant increase in price over a period of a few days or even a few months. They hold their position until the price plateaus, and then they dump it.

Most average day traders look at the resistance and support levels for the price of a given stock. When a stock has reached its historical maximum, it is said to have reached its normal resistance level, meaning it probably will not go up much more. When the stock has reached its historical minimum, it is said to have reached its support level, meaning it will probably not go down much further. However, new resistance and support levels are established all the time, so it is not always smart to rely on historical price levels to gauge future price movements.

Most traders look at websites like MarketWire for the latest breaking news developments to make their investment decisions. If a company has just put out a favorable press release, the price of the stock will likely go up in the short-term, so it is smart to buy some stock as soon as the story is released, and then sell it when the buying frenzy starts to lose its momentum.

One of the most common practices utilized by day traders is known as buying on margin. When you buy a stock on margin, you are basically borrowing money in order to buy stock, and of course the money that you borrow has to be paid back at a certain time. Most brokerages usually require that you have a certain minimum amount in your account in order to borrow.

Some financial institutions require that you have an account balance equal to 25% of the amount you are going to trade on margin, and some require 50% of the amount borrowed. And usually, the trader is required to exit a certain percentage of the positions they have in various stocks by the close of business on the day when the trades were initially executed. Buying on margin is extremely risky, because the money you lose on trades is still owed the lender. Margin orders are not recommended for inexperienced investors.

Another popular trading strategy is called short selling. This is where the trader borrows a stock from a financial institution and then sells it, hoping that the price will go down in the near future so that the trader can buy the stock back at a lower price when it comes time to return the stock to the lender. The difference between the price it was initially sold at and the cost to buy it back in order to return it to the lender represents the profit for that trader. Short selling requires advanced knowledge of market trends.

After a stock is bought and subsequently sold, there is a settlement period that must elapse before the money earned from the sale can be used again to place another trade. The settlement period is usually 3 full business days. This can be especially frustrating for neophyte day traders who have opened up their first brokerage account and then put all of their money into one stock, and then sell it the same day when it goes up, only to discover that they have to wait until the transaction is settled in 3 business days before they can place another order.

So, if you are new to trading, do not use all of your money to place a single trade; set aside some money so that you always have some money in your account that is not tied up in settlement, so that you can continuously trade without interruption.

I hope this information has helped you to become familiar with day trading. Try to set aside some money for investing and start while you are still young. The earlier you begin, the more money you can potentially make down the road. Some day traders make millions, others lose everything, so you should carefully research the companies you are going to invest in beforehand and you will do fine.