Systems Trading The Futures Market: Swing-Trading Timeframe

I'm often asked, "What is the best timeframe for futures trading systems?" Consider the three main timeframes: day-trading, swing trading, and long-term systems. This article will explore swing trading systems and the pros and cons of trading one.

Swing trading systems offer many advantages over day trading systems. Because they hold positions for several days to several weeks, they can fully allow trades to develop before closing out the trade. This translates into capturing more of the market action than a day trading system can. This is very important because many great trades take weeks or days to develop.

In addition to being better at catching large market movements, swing trading systems typically have lower transaction costs. This is because they trade less often, and therefore, their average trade net profit is generally much higher. This not only increases profits, but reduces the effects of commissions and slippage on their returns.

This reduction in the effects of slippage and commssions is of utmost importance a futures trader that would like to have his futures trading system traded for him by a broker. If a broker is trading a system for a client, the broker usually charges a greater commission for offering this service, and because we aren't trading as often these increased commissions have little effect on the system profitability.

The flip-side of the coin is that swing trading systems have drawbacks as well. Compared to long-term systems, they have more transaction costs and don't do as well in capturing very long-term trends as well as long-term systems.

Due to that fact that swing systems hold positions overnight, they need higher margin deposits than day trading systems. This stems from the fact that many futures brokers offer very low day trading margin rates, but once the overnight session begins, the margin requirements revert back to the exchange-set minimums.

Since they hold positions overnight, they also expose the futures trader to higher amounts of risk. This increased risk comes from price changes that can happen overnight, or early in the morning, and these can cause large changes in futures prices the next day when the trading session opens. This is especially true for futures based on commodities such as grains, where any significant news can send prices wildly in either direction.

Unlike long-term timeframe systems, swing systems do offer the futures trader the ability to change market relatively frequently. This matters most when the futures trader sees an opportunity in another market emerge and desires to enter that market in the short-term.

In all, swing trading systems likely provide the best balance of risk to return for many traders compared to day trading and long-term futures trading systems. They provide the ability to catch significant market swings, decreased transaction costs, and react to new market opportunities quickly.

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