Futures Trading & Trading Strategies

[andy abraham]

In regard to futures trading as well as the trading strategies that can assist you in trying to get to your goals,mechanical trend following approaches are what we use in my daily trading of our commodity pool. Hopefully you have read my other posts, there is no holy grail. This is hard work every day or you can invest with a commodity trading advisor in which you understand how he trades. Regardless what I have seen that has worked in the past and stands the potential to continue to succeed in futures trading are the trading strategies mentioned below. The irony as many traders think they are absolutes, they are not. They all seem to have draw downs together as well as the rare large profits together. The reason being is they are all trend following with differences. The only difference is the strategy of counter trend in which I am not the greatest fan ( only to be used in longer term trading strategies with the goal to reduce some of the draw downs).

Trend Following Trading Strategies for Futures Trading
ATR Channel
ADX System
Bollinger Breakout
Donchian
Dual Moving Average
Triple Moving Average ( like two was not enough.. trying to find the holy grail)
Turtle

as well as Bollinger Counter trend

The point I want to make is that there is really very little difference between these systems. They all will have draw downs as well as great years like last year. It all depends on the markets you trade or your commodity trading advisor trades. It all depends on the amount of money in your account or how much you allocate to your commodity trading advisor.
The biggest difference between success and failure is the risk and money management. Any of these approaches can be low volatile or a massive roller coaster. This means all depends on your risk per trade. What percentage of your account do you trade on any signal. Some cowboys trade in excess of 2 percent. Others have no concept of risk per trade. I go with the stomach concept that they know the future. We try to risk less than 1% on any trade. This has kept us in the game. Next we look at correlations between the markets. We do not risk more than 5% per sector.. ie grains.. meats.. index..currencies..etc. The reason being is one morning while all these trades are working…you will wake up and see they are going in the opposite direction and you are losing money..Lastly the next issue is open trade equity. This is were your draw downs will come from.. We limit our open trade equity to the mid teens to the low 20% range.
Bottom line… there are no magic trading strategies in futures trading. The only magic is the risk that is applied to very simple systems that are based on price.

Andrew Abraham
www.myinvestorsplace.com

Futures and commodity trading involve substantial risk.People can and do lose money trading.

[Steven Vincent]

Thanks Andy. Truly risk and money management is hugely important. I agree that counter trend trading is not a good idea. I only try it in the most extreme cases of over bought or over sold conditions. The trend is your friend! As time goes on I am disciplining myself to take fewer trades with better setups and a better risk-reward profile and I am scaling into a trade over time and using better stop losses.

I love your posts. Please keep 'em coming! Check out my blog on the Euro.