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Alternative Strategies For Stock Index Futures

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by Paul Brittain -  Jun 2, 2006
3.9 (from 12 ratings)

If this trading style seems almost too good to be true…your intuitions are correct.  By looking at a chart, a trader would almost never lose if he/she accepted moving average crossover signals to enter and exit a trade.

The problem is that most traders are not sufficiently capitalized to hold positions that will eventually become profitable. Let’s take a closer look at another trade example…

Mini contracts are available, but even a mini would have produced a $617.49 loss before a market reversal.  Many traders are unable or unwilling to absorb such losses, even if they are relatively confident that the trade will end up in positive territory. 

Traders can compensate a Moving Average Crossover system by placing appropriate stops and using a trend-confirming indicator such as MACD or Stochastics.

Trading on Moving Average Crossovers alone will result in false signals.  Filtering signals with a confirmation indicator will alleviate some of this. 

A rule of thumb for stop placement in swing trading is at the relative high or low of the previous two trading sessions.  If the relative high or low is not beyond your entry, use the high or low of the next feasible day.

Stops should be trailed.  Each day that the market goes in your favor the stop should be placed just above the high or low of the previous day.

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Comment on this Article

Recent Comments:
Today I had placed a volatility bet, real-live example: Currently GBP/USD is trading 1.9660. In my opinion GBP/USD is the wildest currency among the major pairs. I'm betting that GBP/USD will move out of the range 1.9653 - 1.9683 by 5am China time. Odds of 1.855 is quite expensive. Meaning if I lose this trade, I'll lose US$300; and if I win, I'll gain only US$90. Since I think the chance of GBP/USD to move out of the range is high, I decide to take the bet. Image of binary platform:...
123   21-05-2008 09:06:36
I think that is because understanding of binary trading is not sufficient to the general trading / investment community. I'm certainly not posting nonsense. I have been trading for years, and now I'm a hedge fund trader in my profession. I understand that if you view is correct, say you are bearish on copper (which I am now), you can either buy a put option, sell copper futures, or short copper ETF, or place an UNDER bet for binary, you still make money in all the methods. But the risk...
123   20-05-2008 23:53:28
Quote: Originally Posted by 123 Futures trading is too risky as it is highly leveraged. Binary trading is safer, I know the total amount of money I'll be risky before I place my bets. It is more favourable in risk management point of view. Really ? Then why aren't the futures exchanges around the world closing their doors, as traders desert them to flock to you. Why don;t you stop posting unsubstantiated nonsense.
dcraig1   20-05-2008 23:29:51
Yes, there is an alternative strategy for stock index futures. That is binary trading. 1. If you think index is going to rise, place an OVER bet. 2. If you think index is going to fall, place an UNDER bet. 3. If you do not know if the index is going to rise or fall, but you think the volatility is low, place an IN bet, meaning you are betting that the price will say IN the range. 4. If you do not know if the index is going to rise or fall, but you think the volatility is high, esp on...
123   20-05-2008 23:25:06
It reminds a trader, especially newbies, to use stops and a few pointers on how to do so.It's a ma combined with stops strategy. If you want a "holy grail show me how to be rich "bull**** - there isn't one, unless you are the vendor. It's a simple method of limiting losses but effective.
neil   04-06-2006 07:36:09

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