Day traders must have a deep understanding of the dynamic, constantly fluctuating trading market.
Making snap decisions is frequently necessary when day trading futures, but it can be a lucrative and thrilling experience. Possessing the appropriate technical analysis tools at your disposal will enable you to identify day trading opportunities when they arise with ease. But which are the crucial tools you need on your charts, given the abundance of indicators available? It’s usually a good idea to follow the pros when trading futures, therefore in this post, we’ll look at the five key indicators that contemporary futures day traders utilize.
Pivots
Pivots are popular indicators often utilized on the exchange trading floors. Known as “Floor Trader Pivots,” this instrument is considered to be one of the most straightforward to compute among the day-trading tools available. Using the high, low, and close values from the prior trading day, the pivot calculation yields seven support and resistance levels that can be used as possible entry points, profit goals, or stop losses. Typically utilized on intraday charts, pivots offer consistent trading levels during the trading session.
These pivot levels might draw larger amounts of orders because futures day traders often use this trading signal. Consequently, prices may consolidate at these levels and stall until a new trend direction is determined. These levels can serve as significant support and resistance levels when news flashes on popular days abruptly swing the market, causing prices to break up or down sharply to one or more of these pivot levels before pausing or reversing. A significant directional bias may be indicated by prices that move swiftly through a pivot.
Previous OHLC (Open, High, Low, Close)
The majority of traders claim that the prior trading day’s highs, lows, and close are the three most significant price values on a bar as they aid in identifying resistance and support on the upcoming trading day when examining a daily bar. The market reached a final/fair pricing agreement at the close point, whereas the high and low indicate where the market identified trading boundaries for that time frame. When day trading futures, it might be helpful to chart the high, low, and close of the previous day on an intraday graph to see potential support and resistance areas for the price. These values frequently match other indicators of support and resistance levels that you might be monitoring. The levels of support and resistance are typically thought to be significantly stronger when this occurs.
The “PriorDayOHLC” indicator lets you choose any or all of the levels—Open, High, Low, or Close—that are crucial to your trade by applying it to an intraday chart.
Opening Range
The four main market indices, which include Micro E-mini futures, are open for trading 23 hours a day. However, the highest volume of day traders typically enters the market at 9:30 a.m. ET, when the regular session floor opens. After the opening, the heavy volume of trades lasts for a few minutes, frequently increasing volatility and setting the day’s first high and low. Numerous other financial and commodity futures exhibit similar characteristics.
Since they can be utilized as crucial levels of support and resistance for the remainder of the day, the highs and lows set during the opening range are significant.
Setting a 30, 45, or 60-minute time window is standard procedure for the majority of futures day traders. The opening range duration is flexible and is determined by the trader. Interestingly, the high or low that is set in this opening range frequently becomes the high or low for the whole of the day.
The orientation of the day’s directional bias may be indicated by breaking out of the opening range period’s predetermined high or low. It is less likely that the market would move lower and below the opening range if the price breaks above the opening range (and vice versa). Opening range breakouts can present chances to profit from significant intraday moves; but, in order to limit risk, make sure you have a stop loss or trailing stop in place.
Order Flow VWAP
A more advanced method of analyzing price activity is the Volume-Weighted Average Price (VWAP), as it proved to be better than a straightforward mathematical average of price. Large-volume trades are given more weight in the VWAP calculation. The average price paid for all contracts since a predetermined starting time—typically the start of the trading session, though you might want to change this start time to the start of the regular day trading session for stock indices—is plotted by the indicator as a line on the chart.
Professional futures day traders typically strive to purchase below the VWAP and sell above it. They frequently use this indicator to gauge their efficiency while entering and leaving transactions. This trend may be seen on a chart where the market frequently retraces back toward the VWAP when prices are stretched too much. A trader’s directional bias can be influenced by the VWAP’s slope and how close the current price is to it. A bearish market is often seen to be in place when the price is trading below VWAP, and a bullish market is thought to be in place when the price is above VWAP.
Order Flow Volume Profile
Volume profile takes into account three important facets of trading activity and is another crucial indicator for futures day trading. The price at which the greatest volume has occurred during the session thus far is known as the point of control (POC). The additional prices where trading was active or consolidated are displayed in the trading profile. The pricing range that is one standard deviation above and below the control point is known as the value area.
The volume profile indicator is a tool used to help identify potential support and resistance trading levels. It shows the number of contracts trading at a given price through a histogram along the Y-axis price scale. Where the volume was the highest and where it wasn’t is easily visible with the help of the volume profile histogram.
Traders frequently view the point of control as a crucial level where prices are drawn in like a magnet. Since buyers and sellers typically “agree” at these levels, other price spikes on the histogram can be used to help determine profit goals or stop loss levels. The value area, another set of levels of support and resistance, can be used to assess if the present price has strayed too far from the point of control.
Forge a Futures Day Trading Strategy by Combining Tools and Indicators
When designing a day trading strategy, additional technical indicators and tools might be a great asset. Futures day traders can also choose to watch other bar intervals and use multi-time-frame analysis to see a more complete image when navigating the markets they are trading in. Furthermore, news, official reports, and other external economic forces can have a significant impact on futures markets. Combining technical and fundamental analysis, risk management, and the self-discipline to stick to a tried-and-true trading strategy are necessary for successful futures day trading.
