How To Choose a Futures Trading System: Swing-Trading Timeframe

When it comes to choosing which futures trading system to purchase, the question of trading timeframe often comes up. The most popular categories include: long-term, swing trading, and day trading systems. Let's discuss swing trading systems and why you should and shouldn't trade one.

Swing trading systems offer many advantages over day trading systems. Since hold times vary from days to weeks, they can fully allow trades to develop before exiting them. This means that you can capture more of the market action than possible with a typical day trade system. Because many great trades take weeks or days to develop, this can be a great advantage.

Besides getting bigger chunks of large market movements, these swing trading systems typically have lower transaction costs. This is possible because these systems trade less often, and therefore, their average profit per trade is generally much higher. This reduces the effects of slippage and commssions on their returns.

This reduction in the effects of commissions and slippage is of utmost importance a trader that desires to have his futures trading system traded for him by a broker. If a broker is trading a system for a client, the broker usually charges a greater commission for offering this service, and because we aren't trading as often these increased commissions have little effect on the system profitability.

On the other hand, swing trading systems can have several drawbacks as well. Compared to long-term systems, they have more transaction costs and don't do as well in capturing very long-term trends as well as long-term systems.

Because swing systems hold positions overnight, they generally also require higher margin deposits than do day trading systems. This stems from the fact that many futures brokers offer quite low day trading margin rates, but once the overnight session begins, the required margin reverts back to the exchange minimums.

Since they hold positions overnight, they also expose the trader to more risk. This increased risk comes from price changes that can happen overnight, or early in the morning, and these can cause large fluctuations in futures prices the next day when the trading session opens. This is especially true for futures based on commodities such as grains, where any significant news can send prices wildly in either direction.

Unlike long-term timeframe systems, swing systems do offer the trader the ability to reallocate his portfolio rather quickly. This matters most when the investor wants to capitalize on activity in another market and desires to enter that market in the short-term.

When considering everything, swing trading systems seem to provide the best balance of risk to return for many investors compared to day trading and long-term futures trading systems. They provide the ability to catch significant market swings, decreased transaction costs, and switch markets relatively easily.