Sunday, March 8, 2009

How to Day Trade Futures and Make Consistent Profits

Here are the steps to Day Trade Futures and Make Consistent Profit:
  1. Learn Futures Trading. Learn the basics of Futures Trading, understand aspects and risks involved with Futures Trading. Making yourself aware of Future Trading Basics will help in making good decisions and exiting any false move before you incur a loss.
  2. Pick any Index Future. Picking stocks would also work but, a particular stock could move against general market sentiment. A stock could go up while the stock market is down. This makes decision making difficult. Sticking with Index Futures eliminates this problem and helps us to follow the major trend.
  3. Watch the Market. Follow the market for atleast a week before taking any positions. Start your day 1 hour before the market opens and read expert reviews on how the market will open. Keep a look-out on how the market develops over the day and follow up after hours and see how it opens the next day. Doing this for a week will give you a good feel of the market behaviour and its highs and lows.
  4. Develop the Trading Strategy. Once the market pulse is measured, let's start with some analysis. Using any Trading Chart freely available online or Trading Software, plot 5 day chart of the index. Note the highest and the lowest values in the 5 days. Also, try and find a day within the last 5 days where the market remained flat. Basically, we are looking for the two patterns shown in the figure above. If this pattern does not emerge, its a no trade. Once these patterns are identified move onto taking the day trade position.
  5. Opening the Trade. If the last trade day of the 5 day period was near the low, take a long (buy) position. If the last trade day of the 5 day period was near the high, take a short (sell) position. For example, lets assume the first chart pattern emerges. Watch the market when it opens and wait for it to get as close possible to the low of the past 5 days. Then take a long position. Exit when the index value approaches the flat day value. This could take more than one day. Square off your position once it is close to the flat day value. The same strategy can be applied for the short position.
This strategy is very powerful and works most of the time. There is no solid reason behind it but the low, high and flat day values work as support and resistance points depending upon what position you take. The market bounces of these values and you make a profit. 

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