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5 Easy Futures Trading Strategies for Beginner

2w ago   Learning   Kolkata   40 views Reference: 875941

Location: Kolkata

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What is Futures Trading?

To understand futures trading strategies, you first need to grasp the basics of what futures are!

Let’s explain it with a simple story of Ramesh and Suresh:

Ramesh recently inherited a significant sum of money and wanted to invest in a piece of farmland. During his search, he found a plot priced at ₹50 lakhs. Ramesh heard that a major industrial project might come up nearby, increasing the land’s value. The owner, Suresh, believed otherwise and doubted the project’s feasibility. He thought the land’s price might decrease further.

They struck a deal: Ramesh would buy the land for ₹50 lakhs a year later, regardless of its future market value. If the price increased, Ramesh would benefit, but if it dropped, Suresh would gain. Once the agreement was signed, neither could back out.

This story is a simplified version of how futures contracts work.

In futures trading, you agree to buy or sell an asset (like stocks, commodities, or indices) at a fixed price on a future date. These contracts allow traders to speculate on price movements or hedge against risks.

Top 5 Futures Trading Strategies for Beginners

Here are five easy and popular futures trading strategies to help you start:

1. Spread Trading

Spread trading involves buying and selling futures contracts of the same asset with different expiration dates or closely related assets with the same expiration date. This strategy aims to profit from the price difference between the contracts.

Example: Suppose you buy Nifty December Futures at ₹21,000 and sell Nifty January Futures at ₹21,010. The spread is 10 points. If the spread widens to 15 points, you make a profit. This strategy minimizes risk compared to outright positions.

Tip: Learn technical analysis to better understand market trends and improve your spread trading skills.

2. Breakout Trading

Breakout trading focuses on identifying key support and resistance levels. Once the price breaks these levels, traders enter positions.

  • Above resistance: Open a long position.

  • Below support: Open a short position.

Example: If Nifty breaks above its resistance level of ₹20,000, you can buy Nifty Futures, expecting further upward momentum.

3. Going Long

“Going long” means buying a futures contract, anticipating a price increase. This strategy is straightforward and suitable for beginners.

Example: You buy Reliance Futures at ₹2,500 per share, expecting the price to rise to ₹2,600 before the contract expires. If your prediction is correct, you profit from the price difference.

4. Pullback Trading

Pullback trading involves entering the market during temporary price dips, expecting the price to rebound.

Example: If Bank Nifty Futures typically trades at ₹42,000 but temporarily drops to ₹41,000, a pullback trader might buy at this lower price, anticipating a recovery.

5. Order Flow Trading

Order flow trading analyzes real-time market transactions to predict short-term price movements. Tools like Depth of Market (DOM) and Cluster Charts are used:

  • DOM: Displays pending buy and sell orders.

  • Cluster Charts: Show executed trades, including price and volume.

This strategy helps traders understand market sentiment and plan their entries and exits effectively.

Tips for Futures Trading Success

  1. Education First: Learn the basics of futures trading and strategies through online courses, books, and webinars. Invesmate offers beginner-friendly courses to help you master futures and technical analysis.

  2. Choose the Right Broker: Select a broker with a user-friendly platform, low fees, and excellent customer support.

  3. Define Goals: Set clear financial goals and risk tolerance levels before trading.

  4. Practice with Paper Trading: Test your strategies in a risk-free environment before investing real money.

  5. Risk Management: Use stop-loss orders and position sizing to minimize potential losses.

  6. Keep Records: Maintain a trading journal to track your performance and identify areas for improvement.

  7. Stay Informed: Follow market news and trends to make informed decisions.

Conclusion

Futures trading offers immense opportunities, but it’s not without risks. Beginners should focus on learning and practicing simple strategies like spread trading and pullback trading before moving to advanced techniques.

If you’re eager to learn more, Invesmate provides best basic to advance stock market courses for beginners. Start your journey with our beginner-friendly resources and take the first step toward becoming a confident trader.

Ready to explore futures trading? Visit Invesmate and start learning today!

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