Reading The Index Future Market

When new participants are just beginning to learn how to trade eminis, they often struggle with a basic understanding of the index future market. Success can only come when the novice trader understands the market, it’s current strength and weakness and how their position exploits this fluid, ever changing environment. Many newly minted traders focus only on the possible profits that can be attained trading futures contracts but to fail recognize market characteristics that can lead to disaster. Following market moves such as momentum plays can yield exceptional results but can also have disastrous results on trading accounts.

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When the market makes a move generated by a significant event such as an area of strong resistance broken through, this will attract crowds of greedy participants that focus on this brief period that generates upside pressure, all hoping to catch large gains from the move. When these market moves happen, most trading rules will go to the wayside with undisciplined and inexperienced traders letting greed overrule trading judgment. Unfortunately, when traders abandoned their trading system, losses and blown out trading accounts soon follow. Momentum events can disappear as quickly as they appeared leaving unsuspecting traders holding the bag.

Strategies that can be successful during momentum moves often lead the new trade into a false sense of trading prowess that can have detrimental effects in less climactic markets. Neophyte index futures traders will many time carry long positions into a momentum move when the market is topping hoping to ride the wave to more profits only to be whipsawed and hung out to dry. Adhering to a trading system and pre-defined trading rules is more important in these trading situations more than ever. When learning how to trade eminis, new traders should focus on reading the broader market and increase their index futures trading knowledge on how to adapt to rapidly to changing market conditions. By opening their eyes and using common knowledge to learn and utilize new profitable trade set-ups through testing, the new trader can acquire skills that other market participants seldom posses.

By joining together the general mood of the market and the current trend, the index futures market player can increase chances of finding profitable trade setups. By determining the current market trend, trade selection is much easier since the trader has tested set-ups in similar markets previously. However, make sure market conditions and dynamics fit the same time frame as the analytical test.

Players should short sell equally as easily as they open long positions. However, short selling is often a physiological barrier for many individuals since the concept is difficult to understand. Buying into a long position does not present difficulty as the concept is easily enough understood since people buy goods and service everyday, not unlike buying into a long position. However, short selling offers opportunity for participants to profit whichever direction the market is headed. Avoidance of short selling the futures market is omitting a profitable opportunity.

Successful futures traders begin each market session with a clear understanding of current market conditions. They acquire the necessary information that will influence the day’s session including market trend and direction, financial reports and geopolitical news that could have an effect on the market. After gauging the larger market and all internal and external influences, they will then scan for the most promising trade set ups that will likely drive the market for this current time frame. By evaluating the market as a whole, the index future trader can asses how to change their strategy to best reveal executable trades. The pre-market will very often determine market direction at the opening bell through the first half hour to hour of the session. The amount of contracts traded are determined by these factors or the trader could determine the opening hour is not conducive to taking a position at all. Many financial reports and news items are often released within the first hour of futures trading and will often set the tone for the day and dictate market direction.

By taking these factors into consideration before executing a trade, the market participant helps eliminate unexpected risks that can pop up and create broken trades and lost opportunity. By executing trades based on pre-defined parameters the trade increase his chance of success. Sometimes the trading participant can benefit by sitting out the first hour, especially when bulls and bears are in a tug-o-war for the day’s market direction. By sitting out the first hour of trading, the futures trader can often capitalize on moves once direction has been identified and ride the trend throughout the day and profit handsomely. By preparing himself to adapt quickly to changes in market sentiment when trading mini-sized contracts contracts, the trader can enhance his potential of success by recognizing moves before the momentum crowd jumps on board in a frenzy. By honing our trading skills, the futures market participant learns to recognize set-ups that offer increased opportunity. Learning to execute trades going long as well as short selling allows us to profit no matter what direction the market decides to move.

The financial markets are not for the undisciplined or the inexperienced. Only by careful study and learning to recognize opportunity when the market presents it can we be successful index futures trading.


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