Choosing A Futures Trading System By Timeframe: Day-Trading Timeframe

When choosing a futures trading system, choosing a timeframe is very important. Consider the three main timeframes: long-term, swing trading, and day trading systems. This article will explore day trading systems and why you should and shouldn’t trade one.

There’s one thing that all day trading systems have in common: they do not hold positions overnight. This means that any open position is closed for the closing bell. The closing bell occurs at different times for different markets, but it generally occurs around 3:30pm Central time.

This means lower margin rates too, since most futures brokers offer day trading margin rates that are lower than the exchange minimums. This benefit leads to an increase in a futures trader’s leverage, and this increased leverage allows him to trade more contracts from a given account size.

Day trading systems are very attractive to many futures traders because they close all positions at the end of the day. Knowing that no matter how the day’s trading goes, your position will be flat (“flat” refers to not having any position, long or short) at the end of the day compels many futures traders to choose these kind of systems.

By trading a day trading system, you are limiting risk. Because the system doesn’t hold positions overnight, the futures trader has removed the possibility that overnight prices going against him. This not only decreases risk on a per trade basis, but on a portfolio basis as well. And reducing risk is essential to a futures trader’s ability to stay in the game for the long haul and be profitable.

Unfortunately, when you limit risk in this way, you have to pay for it somehow. The cost is prematurely closing a trade that could have been very profitable before it had the chance to develop. It varies by market, but good trades can take days to develop, and if you’re using a day trading system, the system will exit every trade, even great trades, at the end of the day no matter what.

Another downside to day trading systems is that they usually profit less per trade than swing or long-term systems. Unfortunately, commissions and slippage are magnified in day trading systems versus swing or long-term systems. Because of this it is very important that you choose a futures trading system that has already accounted for commissions and a generous amount of slippage.

If you can find a day trading system that has adequately handed the previously mentioned problems then you have quite a wonderful way to trade futures. A solid, well-constructed day trading futures system can make large profits in a small amount of time. This is because the futures markets allow for high amounts of leverage, which allows futures traders to turn even small price fluctuations into large profits.

Depending on the system, it may enter the market only once a month or once a week, or may trade many times per day. Most professionals agree that, unless you have access to high-tech algorithmic infrastructure that can execute trades in mere milliseconds, you’ll be doing yourself a favor by avoiding systems that trade more than a few times in a day. This is true because after accounting for commissions and slippage, there generally are only one or a few good trades in a day in any given market. If we try to make trades up when they aren’t there, we usually get hurt.

It is best to look for systems that have already accounted for commissions and slippage in their results, and systems that trade less than 3 times per day (a few times a week is perfect) on average. Once you find a system that meets those criteria, then just apply to it your money management skills, and you’re on your way to trading profits!

Want futures trading systems? Midas Trading Systems provides dozens of futures trading systems available.


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