In this blog, we’ll explore 5 straightforward futures trading strategies for beginners that can be highly beneficial.

What is Futures Trading?

Futures trading involves contracts to buy or sell an asset at a set price on a future date.

To explain this, consider Chiru and Viru: Chiru found a property worth ₹30 lakhs and believed its value would increase due to rumors of a nearby highway. Viru, the owner, doubted this and thought the price might drop. They agreed to fix the price at ₹30 lakhs for a year. If the value rises, Chiru profits; if it falls, Viru benefits.

Futures contracts work similarly, allowing buyers and sellers to agree on a price for assets like commodities or stock indexes, regardless of future market fluctuations.

Top 5 Future Trading Strategies

1. Spread Trading

Spread trading involves buying and selling futures contracts for the same asset but with different expiration dates, or for closely related assets with the same expiration. Traders aim to profit from the price difference between these contracts. Understanding technical analysis can help you identify market trends and improve your spread trading success.

For example, if you buy Nifty Dec Futures at ₹21,000 and sell Nifty Jan Futures at ₹21,010, you create a spread of 10 points. You expect this spread to change for a profit.

After a few days, if Nifty Dec Futures rise to ₹21,015 and Nifty Jan Futures go up to ₹21,017, you would make a profit of ₹15 on the Dec Futures but lose ₹7 on the Jan Futures. This results in a total profit of ₹8 on the spread.

2. Breakout trading

Breakout trading is a well-known strategy in futures trading and is often one of the first concepts taught in technical analysis. The goal is to identify key support and resistance levels for an asset.

When the price moves beyond these levels, traders take action: if the price falls below the support level, they open a short position; if it rises above the resistance level, they open a long position. This strategy aims to capitalize on significant price movements following the breakout.

3. Going Long Trading

In futures trading, “going long” means buying a futures contract with the expectation that its price will rise before it expires. For example, if you buy a futures contract for a leading automobile company at ₹800 per share, you’re taking a long position, hoping the stock price increases by the time the contract matures. This concept applies to various assets, including stocks, commodities, indices, and currencies.

The opposite strategy is “going short,” where you sell a futures contract, anticipating that its price will drop by the expiration date.

4. Pullback Trading

Pullback futures trading strategies focus on entering the market during temporary price drops, anticipating a future rise.

For instance, if a BANK NIFTY futures contract typically trades at ₹42,000 but briefly drops to ₹41,000 due to short-term market fluctuations, a pullback trader would take a long position during this dip, expecting the price to bounce back to its average or higher. This strategy is based on the idea that futures prices don’t move in a straight line; they often experience short-term reversals before continuing in the same direction.

For beginners, technical analysis can be crucial in spotting these pullback opportunities by examining key indicators like support levels and price trends.

5. Order Flow Trading

Order flow analysis is a powerful method in technical analysis that involves studying the real-time sequence of trades to predict short-term price movements. Essentially, it focuses on observing how trades occur and their impact on price changes.

Two key tools for analyzing order flow are Depth of Market (DOM) and Cluster Charts.

• DOM shows live orders waiting to be executed, providing a list of pending buy and sell orders. It gives insight into where traders want to buy or sell, even before those trades happen.
  
• Cluster charts, on the other hand, display trades that have already been completed. They break down the executed trades, showing the prices at which they were made and the volume of trades at each price level.

Conclusion

Discipline is key; it can make the difference between substantial gains and major losses. Stick to a single strategy that guides your trading decisions, and avoid letting emotions influence your judgment.

What works for others may not suit you, so choose a strategy that aligns with your goals and trading style. It’s wise to test your plan using trading software before implementing it in real-time.

By committing to a well-chosen futures trading strategy, you can maximize your wins and minimize your losses.

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Disclaimer: The information provided in this Blog is for educational purposes only and should not be construed as financial advice. Trading in the stock market involves a significant level of risk and can result in both profits and losses. Spider Software & Team does not guarantee any specific outcome or profit from the use of the information provided in this Blog. It is the sole responsibility of the viewer to evaluate their own financial situation and to make their own decisions regarding any investments or trading strategies based on their individual financial goals, risk tolerance, and investment objectives. Spider Software & Team shall not be liable for any loss or damage, including without limitation any indirect, special, incidental or consequential loss or damage, arising from or in connection with the use of this blog or any information contained herein.