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Choosing a Futures Contract for Swing or Day Trading - Part 2

Financial quotes on trading platformIn Part 1, we examined the importance of Liquidity and Institutional Participation in choosing a futures contract to trade. Now, lets delve into some contract specifics that you would be well advised to consider carefully.

In this part, keep in view that the worst state of mind that a swing or day trader can be is in a state of distress and emotional instability. The need to remain calm and focused is of prime importance when trading futures or any highly leveraged financial product. The following factors directly or indirectly contribute to a trader's state of mind:

Contract Size/Tick Value

Choose a futures contract that has a tick value that suits your account size. There is no magic number that can be used for all traders but as a guide, if you find yourself placing too "tight stops" that are well within the "noise parameters" of that contract, then the contract is probably too big for you or that your trading methodology is not sound yet. This way, you will not be giving your trade the "space" it deserves and you will find yourself stopped out of otherwise good positions. As an example, putting a 1 point (4 ticks) stop on the e-mini S&P 500 futures contract has a very high chance of being taken out unless your entry price is highly accurate.

Futures Trading Platform

Do you have fast electronic access to the markets or do you have to go through a human broker to execute your trades? Is there a robust backup system when your primary means of order execution is disrupted? Do you have direct access to the markets or are your orders routed through an intermediary? These are all important questions you need to answer before you start day trading futures. In this day and age, there should be virtually no excuse not to have direct access to the markets and almost instantaneous trade executions! An order entry and trade management software like NinjaTrader is invaluable for trading fast moving instruments like ES, YM and NQ.

Market Hours

Different futures contracts, due to the fact that they are traded in different time zones, have very different trading hours. It makes little sense if you forsake your quality of life over trading futures in a market during the wee hours of the morning, on the other side of the world! Of course, this very much depends on the individual but for the sake of long term success and health, this factor should be given careful thought. There are however exceptions like the e-minis (S&P500, Nasdaq 100, Dow and Russell 2000 futures) which are virtually traded round the clock on exchanges like the CME's GLOBEX, ECBOT or NYBOT. Volume and liquidity is very much less than regular trading hours but is still better than some other alternative futures contracts traded elsewhere round the globe.

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