Following and confirming a trend in futures trading

You may have heard the phrase in futures trading, ‘the trend is your friend.’ You want to follow the trend, but what does “following the trend” mean exactly? To which trend is this popular phrase referring? The trend from two seconds ago? Two minutes ago? 20 minutes ago?

“The trend is a function of what your perspective is and of your day trading strategy,” said Dave Gear, VP of Business Development at BuySide Global. Gear recently hosted a NinjaTrader Ecosystem webinar on following and confirming a trend in futures trading where he further broke down how to follow a trend when trading futures:

• Look for trend confirmations.
• Trade only when the trend is confirmed.
• Continuously monitor the supply and demand levels to help identify when the trend may
  • Continue
  • Stop
  • Reverse

Understanding the trend in futures trading

Even in a market rally, the price will move forward and back, jerking up and down. It is important to understand that price movements do not move linearly even during a sell-off or a rally. Price can display these non-linear behaviors and still potentially be part of an ongoing trend.

An uptrend, or rally, may have the following pattern:

• Low
• Higher high
• Higher low above the previous low
• Higher high above the previous higher high

Trend confirmation to trade: Where and where not to enter

According to Gear, you shouldn’t enter a trade just because you’ve confirmed an uptrend or a downtrend. “Wait for the pull back,” he said. He explained further:

• On an uptrend, you can enter on the pullback’s low.
• Avoid entering on the rise, you might get stopped out.
• On the downtrend, you can enter on the pullback’s high.
• Avoid entering on the drop, you might get stopped out.

Every move will have a pullback, so don’t panic and enter a potentially bad trade at the wrong moment. Be patient – the next trading scenario is right around the corner.

To learn more, watch Dave Gear’s full presentation available for free in our archives now. If you are interested in more futures trading tips, be sure to explore our full library of free  archived presentations available for on-demand viewing in our  Video Library. New events occur weekly, so be sure to keep an eye on our Upcoming Webinars Page as well. You can view a full schedule of upcoming events there and register to attend live (for free)!