For most investors, the preferred vehicle in which to engage in the financial markets are stocks, or derivatives related to this asset class. The most common of these would be mutual funds. More sophisticated investors will use Exchange Traded Funds for their trading and longer term investing.
These financial instruments are fine, but just like any other asset they carry the inherent risk of gaping (opening substantially higher or lower than the previous day close) from one day to the next. There are ways to mitigate this risk, but this is not what this article is about. Instead, we want to introduce readers to the markets that never sleep (except for the weekends).
I’m aware that some of you already know what Futures are, however, you may not yet be familiar with some of the attributes of the Futures markets that make them more appealing than stocks. There is one huge caveat though, since Futures assume a sizable amount of leverage, a trader that doesn’t exercise strict risk management skills will have a very short stint as a futures trader.
Along with the leverage, which, if exercised properly can be a tremendous attribute, there is the aspect of continuous trading. This means that these markets trade —for the most part— uninterrupted twenty four hours a day, five and a half days a week. The benefit to a trader engaged in this market is the vast amount of opportunities presented, at all hours of the day and night.
Unlike with stocks, where the window of opportunity is six and a half hours daily, there are no such constraints in the futures market. Granted, there are times when the markets will give us better opportunities than others. But for the most part, because the futures markets are Global, they will have the tendency to move throughout the day and night.
Below are three example of trades that touched entry, at what some would consider unconventional hours.
The last chart shows a corn supply level that provided a good short-term income shorting opportunity. As you can see by the annotations on the chart, it touched the supply zone in the middle of the night for those of us that reside on the West Cost of the United States (hence the PST time).
The other two examples are in the Currency markets. Specifically, the Australian Dollar and Japanese Yen which release most of their economic data early in the morning there. This translates into a late afternoon, early evening time zone here on the west coast of the United States. As we see, when the Australian government released their Labour survey report, which is equivalent to our Non-Farm Payrolls here in the States, the Aussie Dollar rallied into a nice supply zone right around 4:30 pm, giving a trader an attractive shorting opportunity. Similarly, the Japanese Yen hit its demand level for a long trade at 7:00 pm on the west coast.
Some of you might be thinking that you don’t have the time to be watching all the markets around the world, because like me, you don’t want to be glued to your computer, and also cherish your sleep. The good news is that if you identify the levels in advance, and are willing to assume the risk, you can simply place the orders and leave your computer. After the order is placed in the market we have to live with the two possible outcomes ( small loss, or profit target). This can only happen of course, if you have a low risk, high probability strategy.
In short, the futures market can be a great source of opportunity around the clock, Sunday through Friday, but only for those that know how the markets really work, and can execute a low risk strategy. If that’s not you, then my advise is to learn, before you start trading futures.
Until next time, I hope everyone has a great week.