This article on Life of a Day Trader is the opinion of Optimus Futures.

The life of a futures day trader can be exciting and challenging. You don’t have to answer to a boss, commute anywhere, and can set hours for as long or as short as wanted.

And while it’s not easy, very few professions allow you to potentially write your own ticket.

You can feel on top of the world when you’re making money. On the other hand, when you’re not (and there will be times you don’t, perhaps more than times that you do) it can be lonely, frustrating, and outright demoralizing.

Optimus has been in the futures industry for years. We have seen a number of traders come and go. During that time, we’ve observed a wide range of trading styles and approaches. In this article, we’ll share with you what we believe it’s like to be a futures day trader for most people and discuss what we feel are some of the essential elements needed to be successful.

As a quick note, throughout this piece we will work on the assumption that our hypothetical trader is living in the Eastern time zone of the United States. Although futures markets trade virtually 24 hours a day, this article narrows the focus to a typical day for someone in that geography.

Choosing Your Market

Today’s futures and commodities markets offer many different trading opportunities to traders. For example, they can access interest rate markets, energy, metals, grains, softs, index futures, and even cryptocurrency products.

However, it can be incredibly challenging if you choose to trade all these markets at the same time. Most traders pick only a few – ones they are familiar with or are interested in.

Each product is different in regard to leverage, volatility, liquidity, peak trading hours, and overall opportunities. It is hard to be familiar with them all at the same time.

Whatever market or markets you choose, become familiar with the catalysts that drive it and develop a game plan before you start trading it.

If you’re risk averse, you’ll want to avoid volatile commodity products and stick to ones with less variance.

In our opinion, you should also always try to stick with products that offer relatively deep liquidity like T-Bonds, T-Bills, the E-Mini S&P 500, and Crude Oil. You’ll also probably want to avoid markets where slippage can be high or frequent, examples being Palladium or Bitcoin futures.

If, for whatever reason, you feel like you have an edge in a market that isn’t very liquid, you will need to become much more skilled in managing your order entries and exits due to liquidity and capacity issues.

ALSO READ | Why You Should Only Trade the Most Liquid Futures Contracts

Pre-Market

Each futures market is dynamic. The catalysts that impact the E-Mini S&P 500 will most likely be different from the ones in Heating Oil. Regardless of what futures market you trade.

Many futures day traders will spend their morning catching up on the latest events overseas and trying to decipher their impact on the market they trade.

For example, if you want to trade the E-Mini S&P 500 futures, you might get up 2-3 hours before the New York Stock Exchange opening bell.

You’ll want to read up on international markets and note if any economic events on the calendar have the potential to shift the market.

During earnings season, companies will typically announce before the opening bell and after the market closes.

If a large company like Exxon, Apple, or Microsoft is set to report earnings, you’ll want to be aware of it because it could move the indices depending upon the companies weighting in that particular financial product.

Some events carry more weight than others. If the FOMC is set to have a meeting, you can expect index futures to trade lightly leading up to the event and greater volatility once the FOMC announces its decision.

Being familiar with the news and catalysts can only help you, even if you are a price-action trader. Remember, at least in theory, markets are highly efficient and all news or other data points are being factored into the market in near real time. You don’t want to be surprised to the extent you can help it.

Traders react to news and headlines; the last thing you want is to get caught off guard.

Once you’re up to speed, you want to start developing a trading plan.

If you trade price action, that means outlining the levels you want to be a buyer or seller. Moreover, you want to detail how many contracts you’ll be trading and your profit target and loss.

It’s easy to get emotional about trading when money’s on the line. Many traders jump into a trade without a plan.

By predetermining your profit and loss targets, you’re more likely to follow through.

The first set of economic data releases often happens around 8:30 a.m. est. This can inject extra volatility.

Even if you don’t plan to trade this early, it’s important to be aware of what the news was and the market’s reaction.

The Opening Bell

Also known as the opening auction, the opening bell is usually one most liquid times to trade a futures product. However, it can also be the most volatile.

That’s why it’s critical you have a trading plan in place before you enter a trade.

Some traders decide not to trade the opening bell due to the volatility and wait half an hour to avoid any so called “fakeouts” where price quickly moves in one direction and then reverses or to see if a trend may emerge.

If you’re someone who is looking to scalp in and out of trades quickly, trading the opening bell can offer plenty of opportunity but only for those willing to accept the risk and who have perfected their craft as a scalper.

Traders often define the opening range as the first thirty minutes of the day. Should stocks trend above the opening range, it may forecast a bullish bias, and below the range would forecast a bearish bias.

In addition to the early morning data releases, the next most frequent time for economic headlines comes around 10:00 a.m.

Similar to premarket news, these events can inject more volume and price change in a short period of time.

Trading Mid-Day

Most experienced traders avoid midday because liquidity tends to dry up, and price action tends to be choppier.

The more experienced you are, the more you can break the rules and potentially get away with it. But early on, you want to be disciplined with your decision-making. Deviating from a plan is often what turns potential winning trades into significant losers.

If you’re a new trader, you probably want to limit the number of trades you put on during mid-day. It’s very easy to fall into the bad habit of over-trading which can increase trading costs and exposure to the market.

The more decisions you make during the trading day, the more likely you’ll get decision fatigue and make an error.

One way to avoid or limit decision fatigue is to prepare a trading plan and know when to step away.

For example, let’s say you want to buy crude oil futures because you feel they’ve hit a key area of support. You’ll want to outline the level you want to buy and set at least two targets for where you might want to exit the trade.

The first target is where you’ll take profits, and the second is the level you’ll get out if you’re wrong. New traders often only consider where they will take profits forgetting that they are just as likely to lose with a trade as to win.

Some traders will jump into a trade without having targets in mind. When you do this, it increases your chances of trading emotionally. We have found emotional traders typically don’t last very long in such highly competitive markets.

Instead of focusing on the price action, you focus on your PnL when you get emotional.

It’s easy to let this happen if you sit in front of your computer all day.

That’s why many traders will physically remove themselves from the screens midday for a couple of hours unless they have open positions to monitor. While not physically demanding, trading takes a major toll on your mental health.

The Closing Bell

The closing bell is usually the most active market period next to the market open.

And it’s easy to understand why.

If you’re a day trader, you have to decide whether or not to hold your position overnight, which brings about a whole new set of risks and challenges.

ALSO READ | Why Futures Traders Should Not Hold Day Trading Positions Overnight

Of course, most day traders will close out their positions and go to cash at the end of the day. This allows them to avoid overnight risk and start the next day fresh. Holding positions overnight can cause sleeplessness and potential situations where you may not be able to exit a position. Day traders avoid getting themselves into this position at almost all costs.

After Market Hours

Most futures markets close from 5:00 p.m. – 6:00 p.m. est. Some will close from 4:15 p.m. – 4:30 p.m. as well

These are important considerations when you decide whether to trade after the close of the main session.

Most traders opt to do their ‘ post-game analysis’ in the afternoons.

These folks journal their trades and analyze them to see if they were executed as planned and whether their thesis was correct.

Keeping a trade journal helps traders to figure out what they are doing right and wrong. It’s also good practice to look at setups and trades you missed.

Optimus Flow now includes a free trading journal. 

If you’re unsure about what to journal, here are some tips:

Trade Information: When the trades were made, whether you bought or sold, number of futures contracts, holding period, and profit/loss.

Trade Thesis: In this section, you will write about why you got into the trade and explain your edge.

For example, let’s say E-Mini S&P 500 was up 2% on a rumor that the Fed might slow down rate hikes.

However, an hour later, the Fed Chairman denied the story. Some traders might start shorting ES futures off that headline.

Their thesis is that the futures rose on a belief that turned out to be false, and because of that, ES should sell off.

Well-Being: In this part, you want to write down how you felt going into the trading day.

For example, were you tired/refreshed or distracted/focused? Did you start your day early/late/on time?

Some traders can’t perform if they are hungover or have had a bad night of sleep. Others don’t trade well without coffee or breakfast.

Find out what works for you and doesn’t, and focus on winning.

Execution: Before every trade, you should have your risk/reward mapped out. For example, I’m going to get in at this price and out here if I am wrong.

Once you know your execution strategy, compare it to how you traded your plan.

For example, let’s say you wanted to exit your long-sliver contract at $23, but for whatever reason, you got out at $22.50.

The main reason why traders journal is because they want to identify their strengths and weaknesses.

Ideally, when you have enough trades under your belt, you’ll want to focus on your core strengths.

Inexperienced traders believe they must be good at trading all markets or all setups. That’s almost always not true. Like other professions, trading takes a high level of skill and discipline to succeed. It is exceptionally rare to find a person who can effectively use the same approach across all markets.

For most, you’ll want to focus on your strengths and eliminate whatever isn’t working for you entirely.

Successful traders have a business-like approach to their trading. It is methodical. Often boring. It almost never involves emotion. If you want long-term success, you’ll have to adopt that thinking.

In Summary

While being a futures day trader offers market opportunities, It requires hard work, mental and physical discipline, and the right trading technology. Trading is difficult and challenging.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

This article on TPO Charts is the opinion of Optimus Futures. 

TPO charts can be a way to try and understand the larger narrative of whichever market you are trading. They can be used with futures, commodities, forex, stocks, crypto, and others.

Analyzing TPO charts also referred to as the so-called market profile, illustrates the battle for price direction between buyers and sellers. In other words, TPO charts visualize the flow of orders coming into the market.

Please be advised that all illustrations below were created using Optimus Flow as offered through Optimus Futures.

TPO Chart Basics

What is the difference between a bar chart and a TPO chart?

A standard TPO chart is one full day aggregated into 30-minute vertical blocks that are collapsed upon themselves into the Y axis. The key difference between a 30-minute bar chart and a TPO chart is that the X-axis does not have a standard time frame. There is also no OCHL (open close high low).

The benefit of organizing price movement through the TPO chart is that you can view the market through statistical distributions. You will see why this is important later.

What does the lettering mean?

Each letter is considered 1 TPO, and each letter period lasts for 30 minutes. For instance, period A lasts 30 minutes, period B lasts 30 minutes, and so on.

TPO Chart Value Area

The value area is where the price has spent most of the time throughout the day. When trade is facilitated in a price range for longer and longer periods, it indicates acceptance and fair value between buyers and sellers during that day, hence being named the value area.

The benefit of highlighting this area is expressed most in a daily context. If prices seem directionless over the course of a few days, but the value area is overlapping higher, to some, this may indicate buyer control gaining strength which may not have been readily identifiable in any other chart type.

Point of Control (POC)

The point of control is the largest horizontally stacked TPO nearest to the center of the distribution. When trading in a product occurs at the same price over and over, it is a place where buyers and sellers consider the fairest value for the period being evaluated.

Points of control within large balanced distributions often become important reference points for market participants and activity. For instance, when these prices are revisited, the price action from both buyers and sellers is often slow.

This is for two reasons, a sufficient amount of price discovery has already occurred at this level, and large positions are often accumulated and defended in these areas by both bulls and bears.

Important Analytical Concepts of a TPO Chart

Auction Theory

Auction theory is best visualized using the TPO chart. The auction process is a framework to consider price and its rotations over time.

The versatility of auction theory also means it can be applied to all time frames.

When price travels from one extreme to another, it is said to be rotating. Auction theorists contend that when the price turns, it is the end of one auction and the beginning of another.

This constant auction is always in process between buyers and sellers.

These forces use the “auction” to find the fairest value to facilitate trade between them. When prices are deemed too low, buyers may enter the market and impart their view that the price is below fair value.

If prices are deemed too high, sellers may enter the market and impart their view that the price is above fair value.

This concept can be simplified with our basic understanding of what an “auction” is. For instance, when the auction for an item begins, the auctioneer sets the price.

Participants are asked to place a bid at that price or higher when bidding opens. If no one in the room offers a bid (market participants), then there is a consensus that the price is too high or above fair value.

This forces the auctioneer to reduce prices to facilitate interest, slowly reducing the price until at least a single bid is present.

Let’s also consider the opposite. If an auctioneer opens the auction far below fair value, there should be a flurry of bidding activity that brings that price closer to fair value. Depending on the activity, it can push it higher and higher above fair value.

When a standard auction ends, only one buyer is left, the person who is willing to pay the highest price. In the marketplace, this is the end of that auction rotation and the beginning of another. Remember, auction rotations can happen on any time frame, and in the markets, there is often more than one unit available of the asset being traded.

This same process between the auctioneer and the auction participants occurs at the opening bell every trading day. Without considering the overnight session, the opening bell rings, and occasionally the market drops right from the open.

Not enough market participants have bid at these prices, so the auction has forced the market to offer lower prices to attract buying interest. The opposite is true if the market opens far below fair value; there should be a flurry of activity that drive prices higher.

ALSO READ | Deciphering Order Flow – Understanding The Mechanism That Moves Price

The TPO chart can help visualize this auctioning process as it occurs in the marketplace, as you will begin to see.

Excess

Similar to a wick/tail on candlestick charts, excess is classified as at least two TPO lengths at the bottom or top of a distribution. On a TPO chart, excess signifies the natural conclusion of the auctioning process, whereby the price has traveled too far from value and has been auctioned back into value.

When a TPO chart is missing excess, it is said to be an unfinished auction. This concept, to many, is powerful and can be, in theory, used to the day traders’ benefit. Remember, the auction process can be applied to any time frame.

This image shows a balanced distribution with excess on both the buying and selling sides. This tells traders that both active buyers and sellers came into the market when the price drifted far enough from perceived value.

This image shows an aggressive buying tail.

This image shows an aggressive selling tail.

MORE | An In-Depth Guide to Backtesting Trading Strategies (including TPO Chart)

A poor high or low is when there are two or more horizontally stacked TPOs at the highs or the lows. Price has visited this area in two different TPO periods without creating meaningful excess. In other words, an unfinished auction.

Daytraders can use this information provided by the TPO charts to determine the strength or weakness of the current auction. Without meaningful excess, the current auction becomes vulnerable to tests of the poor structure.

Different time frame participants

The marketplace is made up of different participants that operate in different time frames. Each time frame has its own expectations and behaviors.

Market participants can fall on a spectrum from high-frequency algorithmic trading (less than 1 second) to long-term investing (10+ year time horizon). Participants can drift in and out of the time frames they operate within if their circumstances change or if economic conditions change.

For simplicity’s sake, it is our view that it is most beneficial and practical to think about market participants as being shorter time frames (day traders, algorithmic traders) and higher time frame traders (longer-term investors, swing traders).

Shorter Time Frame

These participants typically open and close their positions within the same day. They are less patient, have weaker directional convictions, and are often used as middlemen between higher time frame buyers and higher time frame sellers.

They often rely on price action patterns, obvious visual support, and resistance areas. These participants are often “weak-handed” and are more willing to change their directional bias.

Higher Time Frame

Higher time frame participants’ activity is more nuanced and difficult to decipher. Their activity is most obvious on trend days.

These participants have more directional conviction since their expectations are much longer. They are less concerned with day-time frame price movements once they initiate a position.

Weak Low

A weak low, similar to a poor low, can be considered an unfinished auction. These weak lows are obvious mechanical price levels such as pre-market high/low, previous day high/low, gap locations, etc.

When an auction stops at these areas and turns, this can indicate that traders are active in a shorter time frame. The auction has been halted at these prices in an almost synthetic manner and pushed away from these prices by traders whose behavior is typical of weak conviction.

In other words, these areas become vulnerable if ever revisited. The TPO chart is a great way to visualize these weak structural areas because they remove statistical noise that is present with other chart types.

Distributions

The key benefit of the TPO chart is being able to view the market as a statistical distribution. This helps organize the data intuitively. Thinking about the TPO chart as a vertical bell curve is helpful in understanding price extremes.

In a balanced profile, the flat part of the curve are areas of the profile furthest from value. They represent the statistical extremes of the day. In other words, the most discounted or the most overpriced areas. The next section will discuss how different distributive shapes mean different things.

D Shape

This is the most balanced distribution and the basis for all TPO structures. D shapes represent higher time frame buyers and sellers in balance, with excess on either side and a large value area where price has facilitated trade over time.

As previously stated, an excess represents overpriced or underpriced areas (the flat part of the curve) and indicates where the highest risk to reward was during the day.

P Shape

P shape is a large buying excess that usually occurs off the open and never gets revisited during the day. It is called the P shape because that is the shape that the TPO chart makes.

The P Shape occurs because aggressive buyers came in and left single prints. The high of the day usually has a smaller D-shaped (balanced) distribution at the top. P-shaped days can occur for several reasons, but they are mostly characterized by swift emotional buying.

b Shape

The opposite of the P-shape is the b-shape. Note this is a lower case “b”. The exact same situation, just on the short side.

B Shape

B shape is a day with two balanced distributions – note the upper case “B”. These days can start lower and end higher or start higher and end lower. The main characteristic is an area of low trade facilitation in the center of the profile. This is an area where price quickly traversed, using it as both support and resistance on the same day.

Trend day

A trend day is characterized by being elongated and having no significant distributions. This is because the price has not spent a long enough time at one level to build balance. It has rotated in one direction consistently throughout the day.

Often, higher time frame buyers or sellers are responsible for such rotations. Typically, the larger the trend day, the more participants that are drawn into the market, and the more the trend becomes self-fulfilling.

Understanding how to read TPO charts can give you an advantage over other traders. Deciphering value areas, points of control, and other characteristics of TPO charts can provide great context to a daytraders decision-making process.

STEP BY STEP | See the price distribution during the specified time via the TPO Profile & understand at which levels the price has spent the most time.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. When considering technical analysis, please remember educational charts are presented with the benefit of hindsight. Market conditions are always evolving, and technical trading theories and approaches may not always work as intended.

Your choice of futures trading platform is a critical decision that can enhance or diminish your overall trading performance. After all, your platform is your main gateway to the markets at large. From the exchanges that offer various market products to the individual traders across the globe who facilitate the transactional flow of the markets, your platform is the interface that allows you to engage this world of activity with just a few clicks and keystrokes.

But contrary to what some traders might think, a trading platform may not necessarily make you a better or worse trader, though it can amplify the knowledge and skills that you already bring to the table. So, when selecting a futures trading platform, start with yourself first– your skills, your knowledge, and your needs.

In other words, don’t adapt your trading style to the functionalities of your platform, but choose your platform according to the necessities of your trading style.

Trading Style vs Trading Platform

Think about this for a moment, and let it give pause: what do you really need to enhance both your trading experience and your trading performance?

Get to the essentials and cut out the fat. Think of where you are in your trading career and decide on the role that a trading platform or trading software in general may play with regards to your own level of market engagement.

• Are you a new trader who is just getting started? If so, you may need to cycle through many futures trading platforms as you discover, develop, and refine your trading approach.

• Are you a seasoned trader whose approach might be more or less set? If so, you may need a new platform to upgrade a specific aspect of your trading performance or to modify your approach or overall strategy by way of a new or different technology.

Again, selecting a platform begins with you as a trader–your experience, your needs, and your goals. Let’s go over several important platform functionalities and think through each one.

Futures Trading Software Functionalities to Consider

Charts: Many traders commonly use bar charts or candlestick charts to analyze and trade the markets. But there are plenty more charts to consider (e.g. point and figure, kagi, renko, line break, etc.), each approaching markets from a different angle and point of view. What matters most is the level of detail that you want to see or eliminate when it comes to market activity. It goes without saying, that a person who trades using a point and figure chart (to minimize market noise) may have a very different strategy from someone using a candlestick chart to a get more nuanced view of price dynamics.

Historical Chart Data: Are you a day trader using who needs only a few days of market data to contextualize your trading environment within a smaller time frame, or are you a position trader who needs to load months of data to view on a daily to monthly chart? Your time-frame of choice may dictate the kind of historical chart data you require for your trading. And historical data may vary from platform to platform.

Indicators: There are hundreds of technical indicators available, each with the capacity to alter or enhance your analytical market view.

• Most futures trading platforms come with standard indicators pre-loaded;
• Some platforms offer proprietary indicators that aren’t available in other platforms;
• Some platform give you the capacity to load third-party custom indicators; and
• Some platforms allow you to code and construct your own indicators.

When it comes to technical indicators, selecting the right platform depends on what you are trying to accomplish. In this regard, not all trading platforms are the same.

Execution Functionalities: Most platforms offer common execution functionalities such as trailing stops and price alerts. But some may offer automatic positional risk assessment, trade entry/exit automation, and more. If you trade multiple markets or use a complex trading strategy, you may want to consider more advanced trade-assist functionalities that can help simplify your trading.

Order Entry: This piece is critical as it directly affects your market execution. Does your trading style require a depth of market (DOM) window to view order flow, and if so, how many levels of buy/sell orders do you need? Do you prefer to automate your order entries, or might you prefer entering them manually? Do you prefer placing bracket orders complete with stop-loss and take-profit orders? Might you need one-click trading to increase your trading speed? Order entry is a crucial part of your trading execution, so spend some time thinking about this.

Ease of Dashboard Interface: A platform should feel intuitive to the user, as if it were designed to be “cognitively ergonomic” to the way you think, see, feel, and operate. This, of course, is subjective. Some people prefer their box of quotes to be on the right side while others prefer it on the top left corner; some prefer their charts to display different color combinations, while others prefer simple black and white; some prefer a single fixed DOM, while others prefer detachable or multiple DOMs. Whatever your preferences may be, you want to select a dashboard interface that seems “natural” to the way you view and act on market data. If a dashboard setup is customizable, then perhaps that’s even better.

Data and Order Routing Speed: If you didn’t already know this, the speed of data flowing into your charts is not necessarily the same low-latency data transporting the trading orders from your keyboard to the exchanges (or to the FCM routers which get transported to the exchanges). Chart data and order routing are two separate operations, and one can be faster than the other.

But let’s talk about order routing speed. Some traders will pay more for a “faster” trading platform. What many traders don’t realize is that sometimes the difference in speed can only be noticed when placing high-volume orders. This means that beyond a certain volume threshold, say (hypothetically) 100 futures contracts in one trade, you may notice less slippage with a faster platform. But below this threshold–and many day traders typically don’t trade anywhere near even 20 contracts per trade–the difference in speed may be negligible. Instead, traders may end up paying more in costs for low-latency functionalities that they never get to experience. Think twice about your platform if speedy order routing is one of your main criteria for platform selection.

Access to Markets and Asset Classes: This is a no-brainer. You need access to the exchanges that offer the markets and asset classes you trade. In the U.S., it isn’t common for a single FCM to offer access to multiple international products or exchanges. Not all FCMs even offer access to options on futures. Let’s suppose that you trade products on the CME, SGX, and Eurex. If you can find a single platform that can offer access to multiple products, exchanges, and (if you are lucky) multiple FCMs, then you may have a winner. Finding a single platform that provides access to every product you trade may be a lot more efficient than using two or more different platforms.

Backtesting and Forward Testing Simulations: If you are the type of trader who actively develops and tests different trading strategies, then it would help to have both backtesting and forward testing capabilities to test your trade theories in a simulated market environment before going live. Whatâ€s critical here is having enough historical data to have a large enough sample size to make your simulated runs more representative of real-world trading. Bear in mind that results from a one-year simulation may not match the results of a simulation run for a period of a decade or more. The sample size is everything when it comes to simulated testing, The larger, the better.

Where Are Your Orders Being Held? When it comes to a basic stop, limit, and market orders, where are you orders actually being held–on your computer, your FCM’s servers, or on the exchange? This is an important consideration because, eventually, all electronic systems will experience some degree of failure. So if your computer crashes, your internet connection fails, or your FCM’s server goes down, knowing exactly where your open orders are being held can help you decide who to call to either monitor your positions or manage your open orders.

Desktop VS Mobile/Web-based Access: If you are often on the road, then trading strictly via desktop computer may not be the best solution for you. You may require access to trading via mobile phone or tablet. If your futures trading platform doesn’t have a mobile app version, consider platforms that have a web-based version that can be accessed using any device with an internet connection. Again, if you are constantly traveling, then you may need a trading solution that can follow you wherever you may go.

Specialized Trading Functions: There are only a handful of trading platforms designed specifically for niche functions. Some of these tend to be more expensive due to a lack of market competition and relatively higher demand. One such specialization that comes to mind is spread trading, which may require spread charts, spread order entry, and spread margins. Another specialized type of platform that comes to mind is one designed for exotic options strategies requiring special order entry, Greeks, and risk metrics. If your trading strategy requires a specialized platform, then do your best to find the most reasonable price for the most comprehensive suite of functionalities.

News Feed: For some reason, news feeds on trading platforms are more common among stock trading platforms than futures trading platforms. But if you trade the news, then access to a news feed may be a mandatory item. It might be even better if your platform can alert you to scheduled events and economic reports. There are a few around, and Optimus Futures offers a futures trading platform designed especially for the news-based trader.

Selecting a Futures Trading Platform is No Easy Task

But what makes it challenging typically goes over most traders’ heads. Too often, traders are caught up comparing platform features and functionalities–which platform has more, which platform might be faster, which platform might be more popular (as if “following the herd” might indicate the right direction).

But platform bells and whistles don’t make the trader, as clothes don’t always make the man or woman. What makes selecting a futures trading platform difficult is that you have to think about how each functionality may help or hinder your own trading characteristics.

As with all things, knowing what you don’t need is just as important as know what you do need.

And getting to know what you really need when it comes to trading requires patience, experience, and reflection. It requires time. So take it slowly, and ask your broker to walk you through the different platform features to help determine whether a given futures trading platform might be a good match for your own trading goals and aspirations.

Do you need help choosing a Futures Trading Platform?

Optimus Futures can help you figure out the ideal combination of technology and features at the lowest possible price. Get our expert opinion on a good solution without compromising on cost, execution or performance.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. 
The placement of contingent orders by you or broker, or trading advisors, such as stop-loss or stop-limit order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders

This article on Limitations of a Single Trading System is the opinion of Optimus Futures.

Technical futures traders invest significant time and resources in crafting a reliable trading system that can help them extract consistent results from their favorite market (or markets) while continually indulging in research and development to further enhance and improve the method.

In this post, we will highlight the limitations of relying on a single trading system by looking at the recent price action on the Crude Oil and S&P500 Emini futures markets.

Your ‘Edge’ vs Your Trading System

If you happen to be actively involved in trading communities and social groups, you may have noticed that traders that seem to possess a decent amount of trading knowledge and experience often refer to the holy grail in this business as your ‘edge’ as opposed to your ‘trading system’, although most new traders are often found using the terms interchangeably.

Whereas professional traders work on finding and sharpening their ‘edge’ in the market, the vast majority of new traders appear stuck in the hunt for a fantasized trading system that ‘has it all’ when it comes to sound execution across all markets, time frames, and market rhythms.

While a trading system’s focus on pre-set standards for entry and exit may appeal to struggling new traders looking for concrete yet brief answers, seasoned traders understand that no one system can ever potentially ‘have it all’. Instead, they work on developing and sharpening their true edge in the market, which stems from a deep knowledge and understanding of market behavior and dynamics, the right trading approach and trading psychology, and a well-equipped trading arsenal with methods and systems suitable to various market conditions.

The Case for Multiple Trading Methods

One of the most sought-after quests for newer traders is the ability to execute consistent profitability across the different time frames – an uphill task for a confined trading system that has to deal with varying volatility and market rhythm.

The chart above represents the latest activity on sweet crude oil futures market on the daily time frame. Notice the relative consistency in trading volumes as well as the market rhythm. The market for crude oil has been in a consistent uptrend for the past several months which makes it a comparatively easier market to trade using some of the popular trend trading systems like moving average crossovers and trend continuation systems.

As a follow-up, try comparing the first chart with the chart above. It is the same crude oil futures market representing the latest price action on an intra-day three-minute time frame. The first noticeable difference is that while we say that both charts represent latest market activity, it is relative to the time frame we are looking. The information on the first chart represents several months of daily price action while the three-minute chart represents price action mostly for the past two trading days.

The other noticeable changes more relevant to our discussion here are laid out on the charts. You should note the volatility spikes on the three-minute time frames as well as definite periods of slow trading versus periods of sharp price movement. You will also note that the price action on the lower intra-day time frame appears more jagged and rough in general compared to the smooth trend that the daily time frame presented.

Price action enthusiasts will quickly chime in here to argue that price action dynamics remain consistent across all markets and time frames, and that is absolutely true. Price action and its most proven dynamics like support and resistance and the candlestick and chart patterns, signify collective ‘herd behavior’ and tend to remain rather consistent across all time frames. This fact, however, does not undermine the real impact that changing volatility can have on smaller time units of trading activity that can dramatically affect the outcome of your trades and your results in general.

Bear in mind that we are not trying to prove that trading on the higher time frames is better or worse than trading on lower time frames or vice versa. We are trying to underscore the difficulty that a trader can potentially face in trying to fit one concrete and objective trading system across the two vastly different trading environments in the hope of attaining equally effective trading results.

The same argument can be stretched to encompass an altogether different problem that new traders constantly struggle with: trying to adjust to different market rhythms on the same time frame.

The S&P500 Emini futures market currently hosts a perfect example of changing market rhythms. The market that had been strongly trending for months, has for the past several months now been contained within a choppy sideways market rhythm. If you look closely enough at the chart above, you should see price only just pushing past the wedge pattern formation to print a potential breakout, which could mean yet another transition perhaps back towards a trending motion.

Just as a singular trading system can find it difficult to cope with varying volatility, it may also post varying results depending on the prevalent market rhythm. Some systems are designed to benefit from trending market situations, while others fare better in swinging or range bound market conditions. Some are created to benefit from and rely on precise and specific market developments like breakout patterns that often imply a transition into a different market rhythm (for example from a range bound market to a trending market via a chart pattern breakout).

Considering the S&P500 Emini futures market above, it may be implied that many trend traders would have been busy for the first part of the move and would be yawning (or worse still nervous) about the following range bound market action, while traders that thrive on sideways market activity would have been pretty much on the sidelines for the first part of the move when the market was heavily up trending. Breakout traders would be perhaps only just getting excited seeing price finally breakout of a wedge pattern formation.

Notably, though, none of the different market phases above point to flat out zero trading opportunities. They just point to varying opportunities that can be hard to classify within a single trading system, unless the system is so vague and weak that it is better not call it a system at all. The alternative to having a weak and vague system is retaining multiple concrete trading methods each in a ‘ready-to-deploy’ stage, specializing in benefiting from specific market conditions.

Trading systems that favor trending conditions usually employ a subjective longer-term approach allowing the trader to ride the trend as much as possible. These systems may also employ more aggressive trade management approaches that provide enough leeway for the trade to absorb minor pullbacks without being squared off.

It doesn’t take much to realize how such a system could be a disaster in a sideways or volatile market. For these brittle market conditions, traders often employ ‘scalping’ methods built to benefit from quicker short-term price movements with conservative trade management approaches built to limit losses as the market pulls back. These systems may also utilize a higher trading frequency to make up for the smaller gains made on profitable trades and the lower win rate overall stemming from weak or volatile markets conditions.

Given how varying market conditions can demand such versatility in trading methods, it is not hard to fathom why a single trading system or method would barely be able to provide the same consistency in trading results across the different market conditions. By now, we hope you also realize that this is not a problem that a trader must submit to, but one that should trigger the trader to explore other specialist trading systems and expand his or her trading arsenal.

There is a substantial risk of loss in Futures trading. Past performance is not indicative of future results.