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Stock Market Secrets for Informed Trading in Futures

15 June 2007 - Markets - Editor

The stock market is green with envy at every story of success with futures. Who would not like to live the life of a rogue trader who bucks trends, deals with incredible margins, and makes lifetimes of wealth in hours! Amateurs and novices may look on in wonder as dream deals are made, with enormous profits realized with just marginal investments, but modern and skilled professionals are increasingly savvy about the systems and procedures which should support all dealings in futures. It would be naïve to sing the praises of futures with no word about the nightmarish turns they can take, but again systematic dealing can mitigate most of these potential hardships.

The good news is that every diligent stock market observer can learn the ropes in terms of judicious trading in futures. Economic modeling, statistics, and computers are the three essentials of professional dealings in futures. Students of econometrics learn these skills as a matter of course, but people from other fields can use conventional software tools to catch up in case they wish to improve their chances of success with futures. Regular practice for even minutes a day can make the uninitiated comfortable with the numbers, graphs, and tables which make sense of this method of stock market trading. Windfall profits may not flow from day one, but neither will unbearable losses.

Modeling is an optimal starting point for working with futures. The latter can on occasion be illogically affected by public sentiment, but such moves are transient. Real shifts in the independent variables affect futures in more predictable and stable manner. It is common knowledge for stock market investors that geo-politics in the Middle East affects oil futures. Similarly, inclement weather and pest outbreaks account for sudden shifts in values of farm products. People make light of pork bellies and orange juice, but introspection on price movements with respect to these commodities, can yield useful light on how to deal with futures for any product or instrument. Naturally, profit potentials are best if you have an information or insight edge over general stock market circles. However, risks are best controlled by starting with futures about which determining factors are in the public domain.

Understanding breakthrough pricing is a key to successful trading in futures. Computers make it relatively simple to spot trend changes in which prices break upper price barriers or threaten established floor prices. However, it takes experience to distinguish between false and transient breakthroughs on the one hand, and stable changes on the other. It is therefore better to graduate to the complexities of trading in futures through breakthrough pricing surveillance only after realizing sizeable gains based on modeling.

 


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