Futures Trading Systems

The first practical consideration in developing futures trading systems is to determine how much time one can afford to spend on trading. Do you have time to sit in front of a computer all day long, or just an hour or two? Should you work with someone else? A good broker can be a great mentor and make a huge difference in the learning curve.

The Approach
Another question is, do I have the time to develop and test my system, or should I buy one? My personal problem with out of the box systems is that they don’t always tell you how they work. That doesn’t appeal to me because if I don’t know the mechanics of it, I have a problem building confidence in it. Still, for other traders it doesn’t bother them. They don’t need to know as long as they believe it works.
Also, be aware that futures trading systems tend to degrade over time. That is because if something works, it doesn’t take too long for others to figure it out. Especially with ever evolving computer technology. In my 40+ years of trading I have had to significantly alter my system 4 or 5 times.
That said, it is imperative to have effective tools that you can believe in. Consequently, if you decide to develop your own futures systems you need to back-test to see what works. Also you must determine if you want to be more focused on the long-term trend, or take a more short-term approach. That also becomes a consequence of the amount of time you can dedicate. Include that with an understanding of your mental threshold for taking losses. These are difficult but important things to consider.
Once a type of strategy is determined, the next step is to decide what entry and exit studies should be tested (i.e. the tactical side). If one chooses on a trend following approach, one would want to consider entry indicators such as moving averages, average directional index, trend channel index, etc. For a counter trend method one would look at indicators such as stochastic, swing projections, MACD, support and resistance to name a few. Exit and money management strategies tend to be similar for both approaches with numerous stop loss and profit objective techniques available.
Once these steps are decided upon the real work begins. Depending on your programming abilities there are two basic approaches to system testing. You can develop your own software; an Excel spreadsheet and or Visual Basic for example. The other alternative is to purchase a trade simulation software program from one of numerous vendors in the industry.
To develop successful futures trading systems is not as difficult task as one initially assumes. Still it takes quite a bit of work and common sense. However it is well worth the effort in developing a good trading plan.