Hello and a very warm welcome to another of my sites, which this time takes a look at how to trade Dow Jones futures, which are of course derivatives of the Dow Jones Industrial Average, the world’s most instantly recognised and watched indices, which tracks the performance of the US stock markets on a daily basis. By the time you have finished reading this site, I hope that you will have a good understanding, not just of the futures market and how to trade dow futures, but also how the futures and cash markets relate to one another, and how, in order to be a successful intraday futures trader, particularly when trading an index such as this, you need to understand this relationship, in order to take advantage of any short term moves as a result.
This is where I began my trading career, in trading stock market futures, but in my case I started trading ftse futures, the UK equivalent of dow jones futures, and considerably less volatile that its more illustrious cousin across the Atlantic. Indeed if you have never traded in the futures markets before, or indeed in index futures in particular, then I would urge you to start with an index that is a little less volatile than the one we are about to examine. Success in trading futures is down to one thing, and one thing only – managing risk. Make no mistake, trading futures is high risk and if you are unable to manage your risk and market exposure carefully you will fail, I can guarantee it, simply because the futures markets move so fast, and the tick data flashes across your trading screen so quickly, that i if you do not have a carefully thought out trading plan and strategy, with unbreakable rules for managing the risk on each and every trade, then you will immediately start to trade on emotion, the worst way to trade. Let me tell you about my first index futures trade, and remember, this is on the ftse future, an instrument that moves much more slowly.
At the time I started trading, there was no electronic trading for small speculators such as myself, as this was well before the internet and online trading accounts. The futures trading world was very much a closed shop, and as such to trade required an authorised account with a traditional futures broker, with all futures quotes executed by phone to the broker, who would then call the floor of the exchange on the squawk box, to get the latest price for the client. The order would then be executed in the trading pit and the price relayed back to the client whilst still on the phone. If you have never traded in this way it is stressful enough worrying about the market moves, without the added stress of waiting on a phone for a price to be confirmed, whilst watching the prices on the screen move, even before the order had been executed. The only way I survived was to have a detailed trading plan which was very simple – the maximum loss on every trade was five index points ( a very tight stop indeed), but at least I knew my maximum exposure on each trade was £50 ( at the time the ftse future index quoted a minimum of £10 per index point). On many occasions I was stopped out, even before I had put the phone down, but I had a plan, and stuck to it on every trade – no imaginary stop losses, or hoping that losing trades would turn and become winning ones. My trading strategy was extremely simple, and based on scalping trades intra day, using two screens side by side, one being the futures price and the other being the equivalent cash stock market index, using five minute candle charts. My entry points were signalled using candle stick analysis, coupled with a bollinger band to confirm the trading signal. It was extremely stressful, and with such tight stops I was often taken out in short term whipsaw movements, but if you are going to trade futures you have to manage these stresses, and the only way to do this successfully is to have a clearly defined plan, and stick to it. Change it by all means, but not in the middle of a trade. This is the golden rule of all futures trading whether you are trading commodity futures ( which I do) currency futures, or indeed any other kind of futures market. You must have a strategy and one which defines your risk and how you propose to manage that risk on each trade – boring I know, but if you don’t you will lose a lot more than you bargained for, as this is a leveraged market, and the dow jones futures will move very, very fast – so you have been warned! Oh, and I almost forgot – my first ever futures trade on the ftse 1oo, netted me £125 after commissions – I remember it to this day, as you will if this is your first time futures trading – and the time the trade was open ? – 4 minutes 32 seconds ( I had to check my records for the details, but there you are!) That’s how fast you can make and lose money in this market, and remember, I was trading an index that moves slowly – dow jones futures will move a great deal quicker than that, I can assure you!
So let’s start by looking at the dow jones index, and then how the dow jones futures index is derived from the worlds most famous and popular index for stock market and dow futures traders alike.
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Stocks fall 5th day, Brent off 2 percent on euro zone fears
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Global stocks, euro slip after weak data
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Euro, US stocks fall on ECB, Fed minutes
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Shares rise as U.S. data soothes growth slowdown fears
2 May 2012 at 12:34am
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Global stocks, euro advance on Europe, jobs data
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Stocks, dollar rise on U.S. factory data
1 May 2012 at 8:33pm
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Stocks, euro slip as Europe concerns mount
11 May 2012 at 8:59pm
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Shares, euro resilient after Europe's elections
7 May 2012 at 8:35pm
NEW YORK (Reuters) - World markets took political upheaval in Europe largely in stride on Monday, a day after voters in Greece and France delivered strong mandates against ...
Stocks, oil slump on weak jobs data
4 May 2012 at 8:58pm
NEW YORK (Reuters) - Global stocks swooned and crude oil tumbled on Friday after a weak U.S. jobs report and data that suggested a deeper recession across the euro zone tha...
