Active futures traders use a variety of analyses and methodologies. From ultra short-term technical approaches to fundamentals-driven buy-and-hold strategies, there are strategies to suit everyone’s taste.
For a new trader entering the futures marketplace, developing a comprehensive strategy can be a daunting task. A good starting place for beginners is to study the three types of active trading:
- Intraday
- Day
- Swing
The key difference between these three styles is duration — the length of time a trader holds an open position in the market. As a trade’s duration increases, so does the trader’s exposure to systemic risk
Intraday Trading
As the name implies, intraday trading occurs on short time frames within a single session. Traders manage open positions in terms of seconds, minutes, and hours, with the objective of capitalizing on rapid fluctuations in price.
Most intraday trading systems are rooted in technical analysis. The study of price action itself is conducive to crafting decisions on compressed timeframes. Here are a few types of trading strategies exclusive to the intraday approach:
- Scalping
- High frequency trading
- Order-flow analysis
Markets that offer substantial depth and liquidity are optimal for intraday trading. Entering and exiting the market efficiently is the key — insufficient liquidity increases trade-related costs associated with spreads and slippage.
Any trades are educational examples only. They do not include commissions and fees.
Intraday strategies depend on realizing small profits while assuming limited risk repeatedly to create profitability. Futures products, such as WTI crude oil and the E-mini S&P 500, are ideal targets for intraday traders.
Day Trading
In contrast to the intraday approach, day trading is the discipline of opening a position in a given market only to make an exit at the closing bell. Although there are some similarities to intraday, day traders do not typically deal in high volumes. Instead, a day trader identifies a premium opportunity early in the trading day and then executes it on a session-by-session basis.
There are several popular types of trading ideal for the daily timeframe:
- Trend following
- Momentum
- Range
Characteristics of a target-rich day trading market are a considerable range and inherent volatility. While most intraday strategies rely heavily on technical analysis, liquidity, and price action to prove valid, day trading strategies frequently incorporate various aspects of fundamental analysis as well.
Swing Trading
Swing trading is the buying and selling of futures or commodities on a multisession basis. The unique characteristic of swing trading methodologies is that open positions are held through at least one session or close. Swing trades commonly last anywhere from two to six days but may extend several weeks.
Swing traders are more reliant on fundamental analysis than intraday or day traders. Although swing traders may use technical tools and indicators to refine a trade’s entry point, traditional fundamentals, including macro-trends and geopolitics, play key roles in their trade selection and management.
Holding an open position through a market’s close requires a swing trader to contemplate several unique considerations:
- Account for extensive margin requirements
- Carry and finance costs
- Systemic risk exposure
Swing trading is a popular approach to engaging equities, forex, and agricultural futures. Fundamental market drivers — such as seasonality, corporate earnings releases, or central banking policies — are common components of swing trading systems.
Understanding the Three Types of Trading
Achieving longevity in the marketplace depends greatly upon choosing the style best suited to your available resources, capabilities, and personality traits. However, no matter which type of trading is your preferred style, successful implementation requires discipline, dedication, and tenacity.
Properly aligning your available resources and trade-related goals is a big part of succeeding in the futures marketplace. With more than 20 years of experience in the financial markets, the team at StoneX can help make your journey into the marketplace a productive one.
