What is Futures Trading? And how does it works? Is there a system for trading it?
Markets work through Supply and Demand (an auction process), that is it.
Many people look for Black box systems in trading, that doesn’t work, even the Phd hired at Goldman’s Sacks must make a trading decision so that he can win or lose the trade.
The Financial markets (specially futures markets) work just as any other market, through an auction process. This means that buyers and sellers gather at one place to make their bets and offers for one particular item. If there are more buyers price rises, if there are more sellers price falls. Many people believe trading is a myth; that is because the barriers to enter are so easy that they think that with the click of a button you will get rich FAST, far from true.
Price in futures trading is set through a process called “price discovery”. What is this, you may ask? This is simply where the buyers and sellers will continue to move the market in one direction or another UNTIL the opposite force is motivated enough to step in and stop the advance. The market will auction as high as it needs to, in order to find sellers, or as low as it needs to, in order to motivate buyers to see it as “relatively cheap”
Now We get to the Futures Trading System
The first part of the futures trading system is comprised of the “long term view” of the market, this part is pretty important, it shows us activity from the “Big” players, hedge funds, Investment banks, buyers and sellers that accumulate stocks of inventory, etc. In trading, this kind of activity made from “big” player or “big money” is called Other Timeframe Participants, while traders that buy and sell on the same day (open and close their position the same day) is called Day timeframe participants.
Other timeframe participants Account for most of the big moves and contracts (they have the most money) while day Timeframe Participants account more for going with those Other Timeframe Participants, our job is to be where the money is, and that is Spotting the Supply and Demand Levels that Other timeframe participants leave trace of on a chart (High, lows, gaps, (link to supply and demand).