Top 5 Futures Trading Strategies You Should Know

In the momentum trading strategy, the trader enters a position when a strong price momentum, along with high trading volume, is observed. In this strategy, you need to enter the trade when the momentum is high and hold your position until the momentum weakens.

You can use indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) to identify the momentum of assets. RSI helps you identify oversold or overbought assets, while MACD helps determine the direction and strength of the price trend.

The trend following strategy is one of the most commonly used futures trading strategies. It helps determine the direction of the market trend, whether upward or downward market trend. In this strategy, once the trend's strength is confirmed, it will likely continue in the same direction.

In a trend-following strategy, traders enter trades and hold their positions to capitalize on potential profits. You can use a moving average crossover to confirm the start of a new trend. For example, if the shorter moving average crosses the longer one, it indicates a potential uptrend.

In a spread trading strategy, a trader buys and sells future contracts simultaneously to earn profits on the price difference between the two contracts instead of following the market trend. Spread strategy is considered a low-risk strategy as the profits from one leg (position) cancel out the loss from another.

In this strategy, you need to enter into two contracts with the same underlying assets with different expiration dates and monitor the difference between the two contracts throughout the period. If the spread is wider, only then enter the market and exit once the spread is normal again.

In a scalping strategy, the trader enters and exits positions within a few minutes and aims to earn smaller profits on minor price movements throughout the trading session. A scalping strategy can be used only in highly liquid assets to make buying and selling easier and quicker. This strategy requires traders to be highly disciplined and constantly monitor the price charts.

For a scalping strategy, you need to utilise 1-minute or 5-minute charts and apply a stop-loss to minimise the risk of high losses.

The mean-reversion Strategy is based on the logic that significant price fluctuations are likely to revert to their general trend over time. When the price of an asset increases, most traders sell its futures, expecting a fall in prices. Similarly, when the price lowers below the average, they buy its future contracts.

For the Mean Reversal strategy, you can use Bollinger bands, Relative Strength Index (RSI) and historical average levels to identify market volatility and trend strength. It is recommended to use this strategy in sideways markets instead of trending markets.