Choosing Short Term Investment Opportunities

The magic of successful trading lies in the ability of a trader to identify winning trends and investment opportunities, preferably ahead of the markets. Yet despite this critical role finding trades plays in overall trading success, it is one of the most thinly covered areas of trading theory online. For those deploying a short term futures trading strategy, finding the right opportunity couldn’t be more important, and succeeding on any kind of scale requires an ability to find these opportunities on an ongoing and consistent basis. So what are the factors used to determine good short term trading opportunities, and how can you spot the likelihood of a directional price movement?

Market Volatility

The first crucial contributing factor to any good short-term futures position is market volatility. Market volatility is the degree to which the market moves in either direction over a short space of time. A more volatile market will swing rapidly in either direction, gaining and losing substantial value in a shorter space of time than a less volatile market, which will by definition be more price-stable. The higher the market volatility, the more opportunity you have to profit from a short-term trade in that market.

Conversely, more stable markets will stay within a narrow price range, which will squeeze your margins and make it much more difficult to trade profitably. While this does limit the risk of exposure, short-term futures trading demands participation in more volatile markets in order to deliver the real revenue potential.

High/Low Pricing

Alongside the degree of volatility in a particular market, you must also consider recent high and low price points for both the futures contract at hand and the underlying markets. When it comes to trading anything, knowledge is power, and this is most certainly the case in trading on a short-term basis.

By knowing the numbers and how current trading and market reaction measures up against recent past performance, you can start to build a three-dimensional picture of what’s going on with the specific underlying asset at hand, which will better enable you to make decisions on which direction the market is likely to move. If a futures contract is trading at around its mid-point and could respond in either direction, it’s perhaps best to avoid jumping in. But if a future is trading at an all time record high and some market factor plays in to the equation with a negative, you know that the futures contract is heading south, and that it has far to fall.

Knowing this information is the difference between landing on short-term trades that are something special, versus grinding out miniscule profits from essentially lucky trades.

Price Triggers

Thirdly, looking out for price triggers completes the puzzle of identifying viable trading options. Price triggers are the factors that prompt the market to either buy or sell, thereby affecting the price of both the futures contract and the underlying asset. The futures market tends to lag behind the underlying market in how it responds to price triggers, so having this information at the ready to make instant decisions (in conjunction with other indicators and investment intelligence) can pay off big-time. Look out for the macro-economic price triggers that happen every day, and think about how they might play in to the fortunes of a particular industry. When you’re trading short-term, price triggers like these are an essential indicator of profit potential, and by unlocking how these triggers actually impact on futures price is critical to squeezing a profit.

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