How To Choose a Futures Trading System: Day-Trading Timeframe

When it comes to choosing which futures trading system to purchase, the question of trading timeframe often comes up. You can break down timeframe into three main branches: long-term, swing trading, and day trading systems. Let's explore day trading systems and the pros and cons of trading one.

Day trading futures trading systems all have one thing in common: they do not hold positions overnight. This means that before the end of the closing bell for the regular session, any open positions will be closed. The end of the regular trading session (varies by market) is marked by the closing bell, and it generally occurs around 3:30pm Central time.

This means lower margin rates too, as most futures brokers allow day trading margin rates that are less than the minimums set by the exchange. This extend a futures trader's leverage, and allows him to reap more profit (and risk) from a given account size.

Day trading systems attract many futures traders because of this one unique feature. Knowing that no matter what trades are made throughout the day your position will be flat ("flat" refers to not having any position, long or short) at the end of the day compels many traders to choose these kind of systems.

The main benefit to trading a day-trading system is limiting risk. Because the system doesn't hold positions overnight, the investor has removed the possibility that overnight prices could cost him money. This not only decreases risk on a per trade basis, but on a portfolio basis as well. And reducing risk is essential to a futures trader's ability to stay in the game for the long haul and be profitable.

Unfortunately, when you limit risk in this way, you have to pay for it somehow. The cost is that trades that could have been greatly profitable are usually closed out prematurely. Depending on the market being traded, good trades can take days to develop, and when using a day trading system, the system will exit every trade, even great trades, at the end of the day no matter what.

Another downside to day trading systems is that they often have lower average trade net profit. This means that the effects of commissions and slippage are magnified in day trading systems versus swing or long-term systems. For this reason, it is vital that you choose a futures trading system that has already accounted for commissions and a generous amount of slippage.

If the day trading system can deal with the previously mentioned issues robustly, then you have quite a wonderful way to trade futures. A robust, well-designed day trading futures system can capture large profits in short periods of time. The reason why is that the futures markets allow for high amounts of leverage, which allows futures traders to turn even small price fluctuations into large gains.

Day trade systems may enter the market only once a month or once a week, or may trade many times per day. Its common thought in professional trading circles that unless you have access to high-tech algorithmic infrastructure that can execute trades in mere milliseconds, you'll be doing yourself a favor by avoiding systems that trade more than a few times in a day. This is true because after accounting for commissions and slippage, there generally just a few good trades each day in any given market. If we try to make trades up when they aren't there, we usually get hurt.

Your best bet is to look for systems that have already accounted for commissions and slippage in their results, and systems that trade less than 3 times per day (a few times a week is perfect) on average. Once you find a system that's a match, then just apply to it your money management skills, and you're on your way to trading profits!

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