Trading the futures market is one of the most popular approaches for traders across the world, particularly in North America. It’s not the easiest form of trading to learn, but the contract styles and markets on offer more than make up for that. So what makes futures trading both appealing and challenging? And if you want to become a futures trader, how long will that take you?
Learning to trade is always a challenging path – there’s a reason why so many quit before they even see the finish line. But if you have a plan and understand the work involved, it becomes a lot easier. This is what we’ve tried to do here, lay out a structure for what you need to know, what to focus on first, and how long it will take you.
Let’s get started!
In this article, we’ll cover
- Understanding the basics of the Futures markets
- How to use technical and fundamental analysis
- The most important factors when finding a Futures broker
- When to move from a demo to a live account
- How long it should take you to learn to trade Futures
Before we start – every trader is unique and learns at a different pace. We’ve coached thousands of traders in the past five years, and we know the value of working with you as an individual trader. This article is a general guide to learning futures trading, and if you’d like to find out more about how we could help you, there’s a link at the end to get in touch with our team.
Understanding The Basics
In futures trading, you need to understand the basics and the importance of both technical and fundamental analysis. These core concepts will help to form your trading strategy and decision-making process, so you can’t overlook this.
How The Futures Market Works
In the futures market, you can buy and sell contracts to deliver assets at a future date. These contracts allow you to buy or sell the underlying asset at a predetermined price, irrespective of the market price at the contract’s execution. It’s essential to be aware that futures are standardized contracts traded on an exchange, where clearinghouses guarantee the transactions, significantly reducing the credit risk for traders.
Contract Elements: Each futures contract includes specific details:
- Asset Type: This could be a commodity, currency, financial instrument, etc.
- Quantity: The amount of the asset.
- Delivery Date: When the asset will be delivered or settled.
- Price: Agreed upon at the trade’s inception.
- Margin Requirements: Unlike traditional securities, you trade futures on margin, which means you only need to put up a fraction of the contract’s value to hold a position.
- Leverage: This margin requirement allows for significant leverage, amplifying both gains and losses.
Technical Analysis
Technical analysis involves studying price charts and trading volumes to predict future price movements based on historical patterns. In the realm of futures trading, mastering chart reading skills is vital. Here are some of the key tools you’ll need to use:
- Trend Lines and Indicators: Tools to determine the direction of market trends.
- Support and Resistance Levels: Prices at which the market tends to reverse direction.
- Chart Patterns: Shapes within price charts that can indicate potential market movements.
You will need to familiarize yourself with different chart types, such as candlestick, bar, and line charts, each providing unique information about the market. Our preference is trading with candlestick charts, as they give you the most detail in a clear, visual way.
Fundamental Analysis
Fundamental analysis examines economic indicators, news events, and financial factors to predict the price movements of futures contracts. Your focus will be on understanding:
- Economic Reports: Such as GDP, employment rates, and inflation.
- Government Policies: Fiscal and monetary policy decisions that affect the economy.
- Market Sentiment: The overall attitude of investors towards a particular market or asset.
In futures trading, events that impact the supply and demand of the underlying asset can cause significant price changes, so staying informed on relevant news is critical for your success. There are a few sites that can help you with planning ahead on upcoming news, such as ForexFactory. Sites like this can be a major help if you’re looking to use fundamental methods as part of your futures trading.
Setting Up For Trading
Before diving into futures trading, you need a solid foundation. Let’s make sure you have the right tools and systems in place, which is crucial for success.
Choosing A Trading Platform
Your first step is to select a trading platform. Your trading platform will allow you to place trades, study the charts, and manage your trading account. There are thousands of brokers out there, all with different trading platforms. To find the best, make sure your trading platform includes most of the below:
- Real-time data: Essential for making informed decisions.
- User-friendly interface: You should find it easy to navigate and use.
- Analytical tools: Crucial for market analysis and developing strategies.
- Reliability: The platform should be stable with minimal downtime.
- Customer support: Quick and helpful support can be invaluable.
- Fees: Understand the costs associated with trading on the platform.
If you’re not sure which platform is best, you can always start out with a free account on Tradingview. It’s one of our favorite charting platforms, and the support is excellent. If you want to see how Tradingview works, we have some guides on our YouTube channel here
Creating A Trading Journal
A trading journal is where you’ll record all your trades. Plenty of traders ignore this part of trading, but that’s usually a recipe for failure. It’s not the most exciting part of trading, but you need a trading journal, so don’t ignore this. A great journal should include:
- Entry and exit points
- Date and time of the trade
- The futures contract traded
- Position size
- Profit or loss for the trade
This record-keeping is vital for reflecting on your trading decisions and tweaking your strategies. A well-maintained journal helps you identify what works, where you can improve, and where you’re making mistakes. Make it a habit to jot down:
- Market conditions: Note if the market was volatile, trending, or range-bound.
- Your strategy: Record the strategy used for the trade.
- Emotional state: Were you disciplined, or did emotions sway your decisions?
- Lessons learned: Document any insights gained from the trade.
Using a journal consistently can make the difference between an OK trader and a great trader.
Futures Strategies
When trading futures, you’ll encounter various strategies that traders employ to capitalize on market movements. Understanding the nuances of each strategy is crucial for your success.
Day Trading Futures
Day trading involves entering and exiting positions on the same trading day, never holding trades overnight. As a day trader, you often use leverage to take advantage of small price movements in highly liquid contracts. Here’s how you can apply this strategy:
- Watch the Market: Pay attention to news events and market sentiment since they can greatly affect prices.
- Use Technical Analysis: Implement charts and indicators to identify entry and exit points.
- Stay Disciplined: Stick to your trading plan and set strict risk management rules.
Swing Trading Futures
Swing trading is about capturing price moves that take place over a few days to several weeks. This strategy allows you to profit from the “swing” in market prices. Here are key components of swing trading:
- Position Sizing: Decide how large each trade will be, balancing potential profit against risk.
- Technical and Fundamental Analysis: Use a combination of approaches to spot trends and potential reversals.
- Risk Management: Set stop-loss orders to minimize potential losses if the market moves against you.
Risk Management
In futures trading, managing your risk is as crucial as identifying opportunities. Believe it or not, poor risk management is the number one reason why traders fail, so this is absolutely vital to your success. Here are a few key elements to help you manage your risk.
Risk To Reward Ratios
Understanding Risk to Reward Ratios (RRR) helps you quantify the potential risk compared to the potential gain on any given trade. You should aim for a minimum ratio where the potential reward justifies the risk you’re taking. For example:
- 1:2 Ratio: For every $1 risked, aim to make $2.
- 1:3 Ratio: Targeting $3 for every $1 risked.
Most traders simply focus on their win rate – by including the RRR, you’re assessing how many wins you get and also the size of those wins to get a true picture of your trading performance.
Why You Need A Stop-Loss
A Stop Loss is an automated order that closes out your trade at a predetermined price level, preventing further losses. Plenty of brokers won’t let you place a trade without one, and for good reason. You should have a stop loss placed on EVERY trade you place. This allows you to:
- Preserve Capital: By setting a stop loss, you aim to protect your trading capital from excessive drawdowns.
- Remove Emotion: It establishes a hard exit point for a trade, which can help mitigate emotional decision-making.
Confirm that your stop loss is placed at a level that is consistent with your risk-to-reward ratios and overall trading plan. In our trading program, each strategy has a different stop-loss rule, and it’s important to fine-tune this rule to get the most out of your trades
Learning On A Practice Account
When you start learning futures trading, a practice account, often referred to as a demo account, is the best place to begin. This type of account allows you to simulate trading with virtual money, providing a safe environment to hone your skills without risking any actual money. There are a few key points to understand when you begin trading this way:
Getting Started with a Demo Account
- Register: Sign up with a brokerage that offers futures trading.
- Familiarize: Explore the trading platform to understand the interface and tools available.
Practicing Trades
- Simulate Real Trading: Use real-time market data to make trades as if you were using real money.
- Experiment: Try different strategies to see what works best for you.
Advantages of a Practice Account
- Risk-Free: Learn to trade without losing actual capital.
- Build Confidence: Gain experience managing trades and reacting to market movements.
Time Investment
You’ll need consistent practice to master futures trading. Here’s a suggested weekly plan for getting started on a demo account. It’s important to remember that every trader is different, and you’ll learn at different speeds, so don’t rush this process.
| Day | Activity |
|---|---|
| Mon-Wed | Test strategies; track results |
| Thurs | Review trades; adjust methods |
| Fri | Read market analysis; prepare for the next week |
Psychology Of Futures Trading
The Futures markets can be unpredictable, and if you’re not careful, emotions can heavily influence your decisions. Issues like revenge trading can creep in if we’re not careful, so you need to master your trading psychology.
Key psychological factors include:
- Patience: You must wait for the right trade setups.
- Discipline: Stick to your trading plan, even in volatile markets.
- Emotional Control: Avoid letting fear or greed drive your actions.
When trading futures:
- Develop a Trading Plan: Your roadmap to navigate market turbulence.
- Maintain Discipline: Follow your plan strictly to prevent emotional decision-making.
- Manage Risk: Only invest what you can afford to lose. Use stop-loss orders to limit potential losses.
Coping Strategies
- Keep a Trading Journal: Documenting your trades helps identify emotional patterns.
- Regularly Review Your Trades: Reflect on emotional responses and improve.
Remember, success in futures trading isn’t just about market knowledge but also managing your psychological reactions. Stay informed, be patient, and maintain discipline to navigate the futures markets effectively.
Moving To A Live Trading Account
Transitioning from a demo to a live futures trading account is a significant step. You’ll now be dealing with real capital, facing actual risk and reward scenarios. You need to proceed with caution and ensure you’re ready and prepared for this. Let’s look through a few items that you need to know before starting with actual money.
Capital Considerations
Before diving in, evaluate how much capital you can afford to risk. It is typically recommended to start with a minimum balance sufficient to trade a single futures contract, but never more than you can afford to lose.
- Initial Deposit: Always adhere to exchange and broker minimums.
- Risk Management: Only use a small percentage of your account on a single trade.
Emotional Readiness
Real money trading often introduces stress that is not present in demo trading. It’s essential to:
- Stay calm: Emotional decisions can be costly.
- Maintain discipline: Stick to your trading plan.
Platform and Tools
The live trading environment will be familiar if you’ve practiced on a demo account, but ensure all your tools and services, like charts and news feeds, are set up for live trading.
Brokerage Selection
Select a reputable broker that aligns with your trading style and needs. Consider:
- Commission rates
- Data reliability
- Customer support
Legal and Tax Obligations
You must understand the legal and tax implications of trading with real money. Consulting with a tax advisor or accountant can save you from future hassles.
How Long Does It Take To Master Futures Trading?
With everything we’ve covered, I hope it gives you an idea that learning to trade the Futures market won’t happen overnight. It’s a difficult process, and a lot of traders give up before they even get to a live account. It’s a difficult road, and it’s doable for any trader if you’re willing to put the work in, but finding the right trading program can help speed that process up.
Timing-wise, when new traders join our program, the average member takes a few months to get familiar with the basics and comfortable on a practice account. Experienced traders are able to pick up our strategies quicker, but we encourage all of our members to take things at their own pace and avoid the temptation to skip steps. After all, trading is a skill that can serve you for years and decades, so it’s not worth taking shortcuts at the start.
Overall, the timeline to learn futures trading should look something like this for a new trader:
- 1-2 months learning the basics and deciding on the style of trading you will pursue.
- Spend a few weeks finding the best broker for you.
- If you’re developing your own strategy, it will take at least two months to test and improve.
- If you’re learning an existing strategy – our traders usually take 4-6 weeks to get comfortable
- Practicing that strategy on a demo account should take a minimum of 3-4 weeks before you are ready to move up to a live account.
If you’d like to learn more about how we trade and if we can help you with your trading, you can get started with the link below. Alternatively, check out our articles on learning to trade different markets, linked below.
