There is no single best futures trading strategy, and it’s important to consider factors such as trading capital, available time, and personal preferences. Backtesting can help evaluate mechanical systems, while discretionary traders may need training. The trader’s edge and biggest loss should also be considered when evaluating strategies. Ultimately, the trader must choose a strategy that fits their bankroll and personality.
There are many successful futures trading strategies. Among them, no strategy is demonstrably the best. There are also strong mathematical reasons for preferring to have several futures trading strategies implemented simultaneously. Even if the trader’s bank roll is not large enough to trade 12 to 20 different futures using two or three systems each, you may find that different classes of futures need different futures trading strategies.
The first two things a trader should look at are trading capital and available time. If the trader has a small stake, like $25,000, success at the end of the day can be problematic. Using a mechanical system could further reduce your chances. If the trader has enough money to support his household for a year while he trades, the $25,000 day trade might work.
The trader must consider his own personality. If he needs to know how business decisions are made, an out-of-the-box system probably won’t work for him. They are typically what are known as “black box” systems, meaning that the decision algorithms are not revealed. If you have trouble with attention or decision making, a pattern recognition approach combined with judgment, a discretionary system, is probably not a good choice when combined with day trading.
If a trader’s preference in futures trading strategies is a mechanical system, the first thing they should do is employ backtesting strategies to ensure that the system is profitable. A discretionary trader needs to hire someone to train him or himself. While backtesting is not something a discretionary system can do, getting plenty of practice is something the trader can and should do.
When evaluating futures trading strategies, the trader will need to look at his edge and the magnitude of the biggest loss. The data that the trader needs to generate is: the winning percentage (%W), the average win (AvgW), the average loss (AvgL) and the largest loss. The “advantage” of the operator is equal to %W * AvgW – (1-%W) * AvgL. That equation is known as “mathematical expectation.”
If the trader’s edge is negative or very small, trading that way is not going to work. The trader’s average monthly income will be the number of trades per month multiplied by his edge. Again, the amount of trading capital will matter: a day trader with a $10 per trade advantage on three day trades will average only $600 per month if he is trading a contract. If you can afford to trade 10 contracts, your average profit is $6,000 a month, enough in many cities to support you.
When choosing the best futures trading strategies, a trader must consider his bankroll and personality, as well as whether the system makes money. There is no point in buying a system that generates large profits if one lacks the capital to implement it. Few people can change their personality to adapt to a trading system; A trading system that requires quick decisions will not work for a trader whose decision-making process is very methodical and thorough. The systems are cheap; business capital is expensive. If the system doesn’t work, throw it away and start over.
Smart Asset.
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