The futures market is characterized by the absence of a spread, a small floating bid/ask ratio and regulation of the volume of client transactions. That is, if a buyer buys a real futures contract and the price of the asset falls, then the buyer will be at a loss, and the seller who sold the contract will make a profit. Unlike Forex, the loss of a trading participant here will in no way become a profit for the intermediaries or the exchange. The exchange “lives” from commissions determined individually for each trader. If you have few transactions, then the commission is approximately equal to the spread, as in Forex, but if there are many transactions, then the commission will be much lower.
Major currency futures can be traded through a regular terminal, following basic trading strategies using fundamental and technical analysis. Futures contracts are term assets, meaning they have a specific closing date before which the contract must be settled. In other words, the client must get rid of his obligations in a timely manner. If you want to keep the deal after the closing date, you will have to switch to a later contract. And if you don’t close the deal on time, the broker will do it for you, but keep in mind that you are unlikely to like the closing price. Most traders hold assets for a relatively short time.
It is worth noting that when news is released, the futures market often experiences strong fluctuations, as a result of which traders use information that is already outdated or has not yet been accepted by the market, so it is better to use several different approaches to make decisions.
When building futures trading strategies, traders often use one of the components of technical analysis - reference points, or pivot points. In general, pivot points are useful in building trading strategies for many financial instruments, including currency pairs, precious metals and oil, as well as stock indices. But the purpose of this article is to consider futures trading strategies and pivots will be the fundamental topic.
First, let’s define what we mean by the term “reference points.” On the price chart, such elements are displayed in the form of support and resistance price levels, formed according to the following indicators:
— Low – minimum price of the bar for a specific period of time;
— High — the maximum price of the bar for a specific period of time;
— Close — closing price of the bar in question.
Each trader can choose the time frame he needs for futures trading: H1, D1, W1, etc. Pivot points can be calculated for almost any time period, but first, be sure to decide on the time frame. Select a specific period on the chart that corresponds to the algorithm, and preferably one that has not yet attracted the attention of most speculators. We will consider exclusively daily pivot points, since large speculators are most interested in this particular timeframe. Using the reference points on D1, you can build your own futures trading strategy plan for future periods. In a mandatory connection there must be support and resistance levels, with the help of which the moments of entry and exit for transactions are found. Before delving into futures trading strategies for pivot points, let’s look at how they are calculated on charts.
Calculations
The price values from which we will calculate the reference points are the minimum, maximum and last closing price. Let's immediately make an important note: the shorter the time period we choose, the greater the distortion of the data obtained thanks to the reference points. Using a timeframe from H1 and below, we increasingly risk getting an inaccurate display and subsequent erroneous calculation.
When trading futures, you should adhere to the following recommendations:
— We calculate pivot points and support and resistance levels on D1.
- Only after this we begin to calculate similar intraday indicators.
The classic strategy for calculating pivot points looks like this:
- We calculate the central fulcrum using the formula: pivot-point = Low + High + Close/3 (divide by the general ratio).
- We calculate support and resistance levels:
a) Resistance No. 1: R1 = (pivot points * 2) – Low;
b) Support No. 1: S1 = (pivot points * 2) – High;
We calculate the second levels in the same way:
a) Resistance No. 2: R2 = pivot-points + (R1 – S1);
b) Support No. 2: S2 = pivot-points – (R1 – S1).
In general, pivot futures trading strategies have two interpretations. The first is a visual display of current levels, the second is their qualification as support and resistance levels.
The “pivot points” futures trading strategy itself is interpreted by traders as an analogue of a physical relationship, namely, the point of intersection of transactions of major market players. After all, it is large traders who will set the subsequent trend for a specific chart. The designated levels near the pivot points clearly represent support and resistance.
Let's look at specific examples of futures trading strategies on specific futures currency pairs
What can you read on the presented EUR/USD futures chart?
1) You can quite clearly identify line D1 (green), as well as S1, S2, R1, R2. For greater accuracy, we chose a small timeframe - M5.
2) At the beginning of the session, huge volumes of transactions were observed; as a result of a strong impulse, the pivot point was broken. Gradually, the bulls began to prevail over the bears, and the latter were forced to close short positions. As a result, the price quickly reached the R1 level. The price then entered a sideways trend, after which the trend was disrupted due to the presence of a large limit seller near R1.
Always trade only with the trend identified on the intraday chart!
If you want to work successfully, be sure to learn how to read a chart correctly. This futures trading strategy provides important parameters of the current trend. More experienced speculators use pivot point futures trading strategies as an additional confirmation signal when entering a trade based on a specific pattern or formation.
Now let's look at the 5-minute chart of JPY/USD
It is obvious that there is a clear trend within the day. Take a closer look at the moment of entry: a position is opened every time there is a gap in the values of the pivot points.
The price decline began right from the reference point. It passed through resistance R1 without any problems and steadily declined throughout the day, breaking through levels S1 and S2. Overall, the yen fell 60 points. And traders had an excellent opportunity to make a profit with each subsequent breakout below the support line.
We can usually identify similar patterns on weekly charts at least five times, and we have an excellent opportunity to open trades based on a specific pattern or formation. A trader just needs to constantly monitor pivot points in order to promptly identify the end of a movement and a change in trend.
A Caution About Forex and Binary Options
The Internet is filled with advertisements from numerous fraudulent sites positioning themselves as trading platforms, brokers or dealers. Typically, these are binary options trading resources and Forex brokers. Users with no experience of trading in the financial market are simply deceived.
Forex and binary options do not belong to the category of the stock market, securities (bonds, shares), derivatives on them (futures and options). BO and Forex are not derivatives of underlying assets. This is a casino, not a trade. The winnings (investor money) go only to the site owner. Fraudsters only skillfully disguise themselves as brokerage houses.
Expert opinion
Vladimir Silchenko
Private investor, entrepreneur and blog author
Ask a Question
Access to the exchange is a licensed type of activity. Often, scam sites have educational material on trading and licenses. Try to find out whether such a broker really has a license from the Central Bank of the Russian Federation or the SEC. Technical support of such resources either does not respond at all or provides fake documents and plausible answers to user requests.
Fraudsters do everything possible to get a gullible newcomer to make a deposit and subsequent payments. To begin with, they will show good results on transactions to “warm up” and increase the deposit, or they will completely disappear along with the initial payment.
No transactions through such companies are related to the exchange. The trader, as a rule, loses the account; the funds always remain with the fake brokers.
Other options for building a futures trading strategy
Sometimes experts recommend combining indicator trading strategies for futures trading with signals from pivot-point`s. As experiments show, this approach is fully justified in the currency futures market. It is in futures that reference points are even more important than indicators. The indicators themselves are relevant for identifying the most accurate time period for entering the market.
To consolidate the theoretical theses, let's consider a specific example of combining indicator trading and pivot points. In the picture below we see a 5-minute chart of the Euro, on which the well-known MACD indicator is installed. The moment of intersection of the moving lines serves as a signal to open a short or long position, respectively.
We enter buy when the fast line crosses the slow line. Of course, with a growing trend, we ignore all sell signals.
At the beginning of the trading session, the price of the Euro was 1.2640, and at the end – 1.2740. The average ATR value is approximately 100 pp. Quite good fluctuations, allowing you to significantly increase your deposit. So the pivot-points strategy can be safely combined with the MACD indicator to identify the trend.
Types of futures contracts
Contracts differ in the purpose of trading and the method of execution. There are 2 types:
- supply;
- calculated.
In the first option, by the expiration date of the contract, the seller must sell the amount of assets specified in the contract, and the buyer must repurchase.
When concluding a non-deliverable (settlement) contract on the expiration day, settlement occurs in monetary terms without delivery of the asset. The calculation is made in the difference between the initial and final futures prices. This type of contract is used for the purpose of speculative profit-making or hedging risks.
What to Consider When Using Pivot Point Futures Trading Strategy
Today, pivot-points is a fairly common futures trading strategy. Almost all futures traders use reference points to early recognize an upcoming trend and then calculate the entry point.
Similar futures trading strategies have been used for several decades by both traders and dealing centers. But here a logical question arises: why, then, against the background of the successful use of this approach, are there also unsuccessful traders who also use pivot points with futures, like their successful colleagues?
The fact is that the strategy of trading futures using reference points will bring profit only if three fundamental postulates are strictly observed.
- Identifying the main trend in the current session and opening trades exclusively in the direction of the trend. Any other signals that supposedly allow you to trade against the trend should be ignored. Oddly enough, for some reason, about 90% of traders often try to trade and apply futures trading strategies against the trend, which has rather dire consequences for their deposits. Such absurdity is often compared to trying to stop a train rushing towards you.
- Successful trading is a positive mathematical expectation for you plus the ability to close unprofitable positions on time.
- Always let your profits grow, do not rush to close the deal to the next level. Most traders make a similar mistake by closing profitable trades too early and not closing losing ones on time.
About Admiral Markets
We are a broker with a global presence and are regulated by various financial institutions. We provide access to over 8,000 financial instruments such as Forex and CFDs on shares, indices, bonds, commodities, ETFs and cryptocurrencies, as well as the opportunity to invest in real shares and ETFs.
With Admiral Markets you can use the most innovative trading platforms such as MetaTrader 4 and MetaTrader 5, as well as the exclusive MetaTrader Supreme Edition plugin, for free.
Download MetaTrader Supreme Edition completely free by clicking on the banner below!
We identify the shock trend day of the day using pivot points
In addition to the recommendations discussed above, many successful stock traders adhere to a number of other rules in order to make a profit in their futures trading strategy. At the beginning of the trading session, the trader tries to find out whether today's movement in the instrument will be a shock trend or not.
Futures traders adhere to the following rule when trading futures: if the trading session begins near the reference mark, then the probability that the day will be a trend is 90%. If you look carefully at the presented charts of the Euro and the Yen, you will be able to identify there signs of an impact trend movement that fully corresponds to its definition. But if you did not see such signs of a shock trend there, then return to considering the beginning of the formation of price indicators.
On the weekly chart you can observe at least two shock days that begin to form directly from the pivot points. We recommend that you independently analyze the main currency pairs and identify similar formation of trend movements there.
What to do if at the beginning of the trading session the price is not in the pivot points range
And now it is necessary to discuss the situation when, at the start of the trading session, the price is far from the pivot points, that is, above R2 or below S2. Then in 90% of cases we will observe a sideways trend during the day, and to avoid losses, reduce trading volumes or completely stop working with this instrument for today.
Be sure to adhere to the following rule: no trading operations carried over to the next day on the opposite side of the trend!
Although violations of this rule are periodically observed. Always keep in mind that, according to statistics, in 90% of cases, at the second level of support and resistance, a small overnight trend occurs. This parity of sellers and buyers pushes some traders to open transactions - they plan to make a profit on a pullback of the overnight trend in the direction opposite to the main movement. But reality shatters their illusions.
Let's look at a few examples where powerful overnight trends are observed. Here you can see large gaps at the opening of the American futures market session.
The first chart clearly shows the gap in the Euro price at the top. This futures contract began trading in the R2 area, around this level, and the price fluctuated throughout the entire session.
Now let's take a look at the Pound chart. We see that at the opening of trading the price was below S2, from where it did not move away throughout the entire session, jumping only in a narrow corridor.
Let us immediately note that the two sessions discussed above are contraindicated for trading for both beginners and experienced traders. If currency futures show a gap, whether up or down, then it is better not to enter the market. If you want to work only in profit, then always expect a trend day when the opening price does not move far from the reference points.
How to access the CME and FORTS exchange
Access to FORTS is provided by any accredited Russian broker. The starting capital to start trading is 30,000 rubles.
CME is a foreign platform, you can connect to it either through a subsidiary of a Russian broker, or through a Western broker:
- IB;
- Captrader;
- Exante.
Interactive Brokers CapTrader Exante Just2Trade
In fact, the only real major American broker who still works with Russians.
Pros:
- There is support in Russian
- Good commissions
- The deposit can be replenished with rubles (bypassing currency control)
The disadvantages include:
- Minimum deposit $10,000
- Inactivity fee
Read the review for the full set of working conditions.
German IB introducing broker for direct access to foreign markets. This is where my investment portfolio is located.
Pros:
- works with Russians
- Availability of a Russian-language version of the site
- reasonable commissions
- no fee for inactivity
- insurance under US law for $500k
The disadvantages include:
- Support exclusively in English and German
- The support service itself is poor
For a detailed review, see this post.
Another interesting broker for going abroad, and not from the IB family. Unfortunately, contracts are opened for Russians only in Cyprus.
Pros:
- Acceptable commissions
- The fact of successful verification of work by the SEC
- Russian-language website and support
On the downside:
- Cyprus jurisdiction
- Inactivity fee
Read a detailed review here. You can get a $500 bonus when opening an account here.
The company is an American subsidiary of Finam and was created to bring clients from the CIS to the American market.
Pros:
- The easiest way to open an account
- Russian-language support
- Opening an account from $200
Minuses:
- Quite high commissions
- Various additional payments
Read the fullest review here.
Making a profit
We looked at the possibility of using a futures trading strategy using currency futures as an example. For decades now, large investment funds have been using price levels to identify trends.
To ensure that pivot points become a source of stable profit for you, adhere to the following general principle:
“When a trend emerges, follow it for the entire trading session. Enter the market when the price crosses the reference points. If, when the market opens, the price is in the area of the reference level, you need to be especially careful. If the opening price is located far from the reference points or outside the S2-R1 range, then it is better to refrain from trading.”
Strategies for trading futures on pivot points are subject to careful preliminary study. In combination with competent money management, they allow you to significantly increase your deposit within a short period of time, while reducing the number of unprofitable transactions.
Risks
For beginners without systemic knowledge of markets, futures trading is a very risky form of income due to instability and liquidity. Before you start trading contracts, you need to acquire knowledge and gain experience in trading on less volatile assets.
The main risk of derivatives trading is the built-in leverage, which in the wrong hands can lead to a margin call.
Keep the volume of positions and variation margin under control; if there is a large volume of unfixed loss or a sharp change in the GO, an open transaction may be forcibly closed by the broker.
Useful tips for novice investors
- For novice investors, it is best to start with the Russian derivatives market, using highly liquid trading instruments : the RTS index, Gazprom shares, currency pairs EUR/USD , RUB/USD . Trading futures contracts on these assets is characterized by excellent returns.
- To build a trading system , you must first undergo appropriate training. Investors mainly use mechanical strategies based on the work of indicators. You can also use candlestick analysis tools. To do this, I recommend reading the article “Japanese candles for beginners.”
- Before you start trading with real money, thoroughly hone your skills on a practice trading account . It is also advisable to select two markets at once in which the effectiveness of strategies could be tested.
- Develop your own risk management system to constantly monitor the size of your trading account and reduce the likelihood of a complete loss of your deposit.
- Enter into a user agreement with one of the previously proposed brokers - Zerich or Just2Trade.
Video series for beginners and more
Watch the training webinar conducted by the director of the Zerich . After viewing it, you will learn how to trade futures through the QUIK .
Webinar organized by Finam . It describes in detail the principles of making money from oil and gold.
Useful video about warranty coverage .
An animated cartoon that calculates the cost of purchasing BRENT .
Another video explaining the principle of making money on oil using futures.
How futures work - explained by a financial analyst
Nikolay Klenov, Raison Asset Management, financial analyst. 7 years of experience in analyzing global financial markets, including in the companies ON/Capital, Amaday. Specialization – IPO on American stock exchanges.
Nikolay Klenov, Raison Asset Management, financial analyst
“Futures (from English futures) are a standardized exchange contract that obliges the parties to buy or sell an underlying asset at a certain price on a certain date in the future. This contract has a specification that defines the term, price and quantity of the asset being traded.
Futures are either delivery or settlement. A deliverable futures contract implies physical delivery of the underlying asset from the stock exchange warehouse after expiration (the expiration date of the contract). In the case of a settlement futures, a monetary recalculation occurs in the difference between the contract price and the actual price of the underlying asset, also at the time of expiration.
If the futures price rises, then the buyer wins; if it falls, then the seller wins.
Futures are used for insurance against financial risks (hedging), as well as for speculation.
Futures spread
In addition to simply buying or selling a futures contract, you can use spreads (a simultaneous combination of futures). The most common spreads include:
- A calendar spread is the simultaneous purchase and sale of two futures of the same type with the same price but different expiration dates.
- Intermarket spread - a trader buys a contract for one asset and sells a contract with the same term for another asset.
- An interexchange spread is the purchase of a contract on one exchange and the simultaneous sale of the same contract with the same term on another exchange.
Which futures are the most popular? There is no clear answer here. It all depends on what goals the investor has.”
Grid Options
Now let's list the parameters that need to be set when starting grid trading on Binance Futures.
- Trading pair.
- Margin mode.
- Leverage size.
- Lower and upper execution price.
- Grid mode.
With the first four points, in principle, everything is clear. You choose a pair to exchange, cross or isolated margin mode, decide how much money you will borrow and set the starting and ending point.
Now let's look at the grid mode. It can be arithmetic and geometric . In the first case, the gap between the upper and lower prices will be divided into equal segments. At their extreme points, intermediate orders will be executed.
The percentage difference between the entry and exit points is calculated by dividing the difference between the high and low points by the total number of orders. After this, a series of price levels are set (price_1, price_2, etc.) and the grid is launched.
In geometric mode, the opening price of a new intermediate order is calculated by multiplying the price of the previous order by a specified number (price_ratio). It is calculated using the following formula:
price_ratio = (grid_upper_limit / grid_lower_limit) ^ (1/grid_count)
The difference in price as a percentage (price_diff_percentage) between orders is calculated using the formula:
price_diff_percentage = ( (grid_upper_limit / grid_lower_limit) ^ (1/grid_count) - 1) * 100%
Then price levels are set and the grid is launched. If an error was made in the calculations and the difference in price is less, the smaller the tick size (tickSize), the system will require you to change the settings. The formula for calculating the minimum acceptable difference (min_price_diff) depends on the grid mode.
- Arithmetic progression: min_price_diff = (grid_upper_limit - grid_lower_limit) / grid_count
- Geometric progression, min_price_diff = grid_lower_limit * price_ratio
It is important to calculate the actual profit for each intermediate order, otherwise it may turn out to be less than the trading commission. The lower (profit_per_grid_lower) and upper (profit_per_grid_higher) profit limits for different grid modes are also calculated differently.
- In arithmetic mode, the formula is used:
profit_per_grid_lower=[1+ (grid_upper_limit — grid_lower_limit)/(grid_count* grid_upper_limit )]*(1-commission%)^2-1
- In geometric mode, the formula is used:
profit_per_grid_geo=(grid_upper_limit/grid_lower_limit)^(1/grid_count)-1-2*transaction fee%
The initial margin amount is entered using the slider or on the keyboard. The value must be the minimum acceptable and less than the trader’s total deposit balance. The final investment amount (including margin), the number of orders and the allowed margin balance are also indicated.
Drain trading will be activated when the current marking price matches the activation price. Stops are activated when the current price and the established limit coincide. To ensure that all orders are immediately canceled when the grid is stopped, check the box in the required box. The same applies to closing all positions.
Example of a short net
Let's say the total investment amount is equivalent to $500. You have selected the ETH/USDT trading pair and set the price in the range from $2500 to $3300. Moreover, the latest market price is $2889. In arithmetic mode, the grid is divided into 5 equal parts and short sell orders are activated as follows:
- 3300$;
- 3220$;
- 3140$;
- 3060$;
- 2980$;
- 2900$.
The lowest price is excluded, and the remaining orders are placed in the range from $2500 to $3300. In a short grid, the first limit order will activate the bottom short position. After the order is executed at the lowest price, a buy order is placed at the lower price of the range and then they go sequentially at all prices indicated in the list, filled in in ascending order.
When you need to summarize, the amount of income (or loss) from each matched and unmatched order is taken into account. Long and short grids are designed for trend trading, the difference will only be in the range between orders.
