System Lapel
How Timeframe Affects Your Futures Trading System: Day-Trading Timeframe
When choosing a futures trading system, choosing a timeframe is very important. The choice lies mainly between three main categories: swing trading, day-trading, and long-term systems. Now let's 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 before the end of the closing bell for the regular session, any open positions will be closed. The end of the regular trading session (varies by market) is marked by the closing bell, and it generally occurs around 3:30pm Central time.
This means lower margin rates too, since most futures brokers allow day trading margin rates that are less than the minimums set by the exchange. This benefit leads to an increase in a futures trader's leverage, and allows him to reap more profit (and risk) from a given account size.
Day trading systems attract many futures traders because of this one unique feature. The idea 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 over other choices.
By trading a day trading system, you are limiting risk. Because the system holds no 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 very important to a futures trader's ability to survive to trade another day.
Unfortunately, when you limit risk in this way, you have to pay for it somehow. The cost is that trades that could have been greatly profitable are usually closed out prematurely. It varies by market, but good trades can take days to develop, and when using a day trading system, the system will always exit every trade at the end of the day, regardless of how well it is doing.
Another downside to day trading systems is that they often have lower average trade net profit. Unfortunately, slippage and commissions are magnified in day trading systems versus swing or long-term systems. For this reason, it is vital that you choose a futures trading system that has already factored in commissions and provided for a generous amount of slippage.
If you can find a day trading system that has adequately handed the previously mentioned problems then you might just have found a a wonderful way to trade futures. A robust, well-designed day trading futures system can give large profits in short periods of time. This is because the futures markets allow for increased amounts of leverage, which allows futures traders to turn even small price fluctuations into large gains.
Day trade systems may enter the market only once a month or once a week, or may trade many times per day. Its common thought in professional trading circles 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 slippage and commissions, there generally are only one or a few good trades each day in any given market. If we try to make trades up when they aren't there, we usually get hurt.
Your best bet is to look for systems that have already factored in slippage and commissions 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's a match, then just apply to it your money management skills, and you're on your way to trading profits!
Need futures trading systems? Midas Trading Systems offers dozens of futures trading systems available.
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