Short Time Frame Trading
Futures swing trading is taking a new futures position and closing the same position within a fixed duration of time. The trades usually last a few hours or a few days. The main objective is to ride on short-term pricing trends until pricing exhaustion. Any financial instruments, such as commodities, stock indexes, equities, or bonds, has a tendency to move in a certain direction for a medium or long-term period.
Definition of Swing Trading
There are many books on swing trading and much has been written on it. It is an objective method of assessing any financial instrument’s price movement. Trading on price trends gives a rough indication of what a futures contract is likely to do, and this captures the market volatility on that futures contract price.
Without employing swing trading, it is nearly impossible or even difficult to predict futures price movements. This is because financial markets are moved by emotional and logical fluctuations. The emotional component of the up and down movements is difficult to quantify. Often there is a great impact, and other times little impact. Luckily, swing trading techniques can help us.
Analyzing Short-Term Trends
We can observe short duration price trends using trend analysis.Trend analysis shows how a financial instrument has moved in the past using regression tool to capture the likely future price movement of the futures contract.
Moving Averages Regression Line
A regression line could be drawn based upon past price movements. Any financial instrument with rapid movements below and above the regression line has a high volatility. High volatility is useful for trader who is looking to buying or shorting. Begin by measuring the past performance of the financial instrument. You can then use it to predict performance in the future.
Once you have elementary understanding of how a futures contract price moved in the past, you can begin to analyze how it will move in the future. A moving average is the average price over a fixed amount of time. You can set it to 3 days, 7 days, 50 days. Typically, a 20 day moving average is being used by professional traders as a regression line. If the price diverges from the regression line, it is likely to revert back to the line, as it may have resistance or support above and below the regression line. When the price diverges from the regression line drastically, you can profit from the volatile swings, and this is called swing trading.
Futures swing trading is trading futures contracts for a predetermined duration. As futures trading involves high leverage, it does allow you to profit greatly from the volatile price swings. Normally, you predict where the price of a futures contract will go in the future, from where it is today. Entering into a futures contract on a large swing in price thus allows a beneficial entry price for the futures contract. This is how you can use swing trades to profit.
Predicting stock, index and future prices is not difficult, but they do depend on micro and macro level financial and economic matters. There are no holy grail methods that can help you make 100% profitable trades. However, swing trading helps you in determining where the futures markets will be heading in the future and also whether the futures markets participants have correctly priced the futures contracts you are trading.