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What are common Futures Trading strategies? (Trend following, mean reversion, spreads)​

Common Futures Trading Strategies

Traders use different strategies in Futures Trading based on market conditions, risk appetite, and trading style. The most popular strategies include trend following, mean reversion, and spread trading.

Trend Following Strategy

Concept: Trade in the direction of the market trend (uptrend or downtrend).
Tools Used: Moving averages, momentum indicators (MACD, RSI), price breakouts.
Entry Rule:
  • Go long when prices break above resistance or moving averages.
  • Go short when prices break below support or moving averages.
    Exit Rule: Use trailing stops to ride the trend until momentum weakens.

Example:

A trader sees crude oil futures breaking above the 200-day moving average and goes long.
The trader stays in the trade until momentum slows down.
Best for: Trending markets (stocks, commodities, forex futures).
Risk: Whipsaws (false breakouts) in sideways markets.

Mean Reversion Strategy

Concept: Prices tend to revert to their historical average (mean) after extreme moves.
Tools Used: Bollinger Bands, RSI, support/resistance levels.
Entry Rule:
  • Buy (long) when the price is oversold (below historical mean).
  • Sell (short) when the price is overbought (above historical mean).
    Exit Rule: Exit when the price returns to its mean level.

Example:

Gold futures price drops far below its Bollinger Band → A trader buys, expecting a bounce back.
Best for: Sideways or range-bound markets.
Risk: If a strong trend develops, price may not revert.

Spread Trading Strategy

Concept: Buy one futures contract while selling another to profit from the price difference.
Types of Spreads:
  • Inter-Commodity Spread – Trade related assets (e.g., crude oil vs. gasoline futures).
  • Intra-Commodity Spread (Calendar Spread) – Trade different contract months of the same commodity (e.g., buy December crude oil, sell June crude oil).
  • Inter-Market Spread – Trade the same contract on different exchanges (e.g., S&P 500 futures on CME vs. Euronext).
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Example (Calendar Spread):

A trader buys July wheat futures and sells December wheat futures, betting that near-term prices will rise faster than later-month contracts.
Best for: Lower-risk trading with less exposure to market-wide moves.
Risk: Unexpected changes in supply/demand can impact spread behavior.

Other Notable Futures Trading Strategies

Breakout Trading – Entering trades when prices move beyond key support/resistance levels.
Pairs Trading – Going long on one asset while shorting a correlated asset (e.g., long silver, short gold).
Scalping – Very short-term trading to capture small price movements multiple times per day.

Key Takeaways

Trend Following – Ride strong market trends.
Mean Reversion – Profit from price corrections back to historical averages.
Spread Trading – Trade price differences between futures contracts.
Risk Management is essential—stop-losses and position sizing help protect against losses.
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