Short Duration Trades
Futures swing trading is opening and closing futures positions within a short duration, from a few hours to a few days. The aim is to capture short-term pricing trends and make money from them. Pricing trends involves the tendency for a commodity, stock index, equity, bond, to move in a certain direction for a medium or long-term period.
What Is Swing Trading
Swing trading is widely written and there are many books written on this topic. It is a solid method of assessing any financial instrument's price. Trading on price trends assesses what a futures contract is likely to do, and capturing the market volatility on that futures contract price. This is impossible or even difficult to predict as financial markets have emotional and logical fluctuations. The emotional part of the fluctuations is difficult to quantify. Sometimes, there is a great impact, and sometime little impact. Luckily, swing trading tools can find likely price movements.
Price trends in short-term trading obtained from price fluctuations using trend analysis. Trend analysis shows how a financial instrument typically moves using some sort of regression tool to capture the likely future trend of that futures contract price.
Regression Line Using Moving Averages
Typically, a regression line could be drawn based upon past price movements. A financial instrument with frequent moves above and below this line has higher volatility. Volatility is useful for a trader who is looking to buying, while it is an enemy of those selling. Start by measuring the past performance of the financial instrument. You can then use it to predict future performance.
Once you have a basic understanding of how a futures contract price moved in the past, you can start to analyze how it will move in the future. A moving average is the average price over a fixed amount of time. You can set it to 5 days, 10 days, 50 days, 200 days or whatever period you like it. This is commonly used as a regression line. If the price diverges from the regression line, it is likely to return to the line, as it may have resistance or support above and below that line. When the price diverges from the regression line drastically, you can profit from the swings, and this is known as swing trading.
Futures Swing Trading
Futures swing trading involves trading futures contracts for a predetermined length of time. Futures trading involves high leverage and it allows you to profit greatly from the price swings. Basically, you predict where the price of a futures contract will go in the future, from where it is today. Entering into a futures contract on a large swing in price thus allows a beneficial entry price for the futures contract. This is how you can use swing trades to profit.
Study And You Will Prosper
Predicting stock, index and future prices is difficult and dependent on macro and micro financial and economic matters. There are no holy grail methods that can help you make 100% profitable trades. However, swing trading helps you in determining where the futures markets will be heading in the future and if the futures markets participants have properly priced the futures contracts you are trading.