{"id":8303,"date":"2020-03-25T15:48:02","date_gmt":"2020-03-25T19:48:02","guid":{"rendered":"https:\/\/optimusfutures.com\/tradeblog\/?p=8303"},"modified":"2020-03-25T15:48:02","modified_gmt":"2020-03-25T19:48:02","slug":"futures-trading-bear-market","status":"publish","type":"post","link":"https:\/\/optimusfutures.com\/blog\/futures-trading-bear-market\/","title":{"rendered":"Trading Futures in a Bear Market | What NOT to Do When Facing Unprecedented Market Volatility"},"content":{"rendered":"

The following article on Trading Futures in a Bear Market is the opinion of Optimus Futures.<\/p>\n

\"Futures<\/a><\/p>\n

If this is your first bear market, then you might find yourself a bit stunned by the turbulence that\u2019s been hitting the markets over the last few weeks. This is especially the case if you\u2019re a short-term trader. You see, the 2008 financial crisis didn\u2019t happen quite this fast, and the volatility, though quite bad, wasn\u2019t this bad. The crash that comes closest in recent history is probably the 1987 stock market crash, though the initial plunge (and the bear market to follow) was short-lived.<\/p>\n

Right now, the markets won\u2019t find a bottom until the COVID-19 pandemic finds some kind of resolution. And by the looks of it, whatever resolution is out there surely isn\u2019t on the horizon. And as far as the overall economic impact is concerned, arguably, we\u2019re still seeing the tip of the iceberg. What this means is that there\u2019s more volatility to come.<\/em><\/p>\n

Perhaps you\u2019re \u201clong\u201d volatility, meaning you thrive on sharp price swings. But again, perhaps this level of volatility–one in which index futures hit limit-down well before the stock market even opens–is a bit too turbulent, even for your taste.<\/p>\n

Take a look at the chart below, the S&P 500 index over the last five months:<\/p>\n

\"S&P<\/a><\/p>\n

The current trend is obviously sharp and downward-sloping. So, if you took more of a position trade approach–buying puts or staying short the market–then your trading situation would\u2019ve been relatively simple.<\/p>\n

But if you\u2019ve been trading intraday, or swing trading from one day to the next, the market volatility might have made your directional biases a bit more confusing. Just take a look at the 15-minute chart of the S&P 500 futures and you\u2019ll see what we mean.<\/p>\n

\"15-minute<\/a><\/p>\n

Certainly, there are ways to make money in these types of market conditions, and we\u2019ll leave that up to you. What we want to focus on is how not to mess up when faced with an exceedingly turbulent market.<\/p>\n

Bear in mind that 50% of successful trading<\/a> is not messing up your trades. And that\u2019s what we\u2019ll cover here today, namely, how to avoid key mistakes that will likely blow up your trading account.<\/p>\n

As you know, you can\u2019t always force a win, but you can avoid foreseeable trading blunders. So, once you have the right defensive stance in mind, only then should you concern yourself with scoring a gain. Here are a few important points to consider.<\/p>\n

Don\u2019t Go \u201cAll In\u201d…Trading Isn\u2019t Gambling, and Gambling Isn\u2019t the Best Trading Strategy<\/h2>\n

When someone goes \u201call in,\u201d say, in a poker game, that person takes his or her entire stake and bets it on one hand. Sure, poker requires skill, but when you\u2019re making such a bet, you\u2019re also relying on lady luck to deliver a victory. In trading, such a big gamble isn\u2019t necessary, as you can always accumulate a large return by racking up a series of smaller gains. You just have to be patient and strategic.<\/p>\n

In futures trading, going \u201call in\u201d can also mean overleveraging your position. Futures contracts are always \u201cleveraged.\u201d So, if you\u2019re overleveraged, that means you\u2019re not paying attention to your % risk levels.<\/p>\n

Take the Dow Jones futures (YM) on February 28, 2020. Let\u2019s suppose you have a small $5,000 account. You know that the markets are fundamentally stacked to the downside, so you go in with a one-contract short position, potentially<\/span> a high-probability trade.<\/p>\n

\"Dow<\/a><\/p>\n

You go short at 25,485 thinking you\u2019re about to ride another wave down. Instead, the YM rallies on \u201cheadline risk\u201d optimism. Let\u2019s suppose you attempt to hold on, thinking that the market is eventually going to resume its downtrend. As you see the market could continue rallying beyond your exit, and if you have no exit you could potentially be in a debit (where you have to add funds beyond your initial investment).<\/p>\n

The common sense thing would be to calculate your trade ahead of time, determining what a full position might mean to you, and entering only partial positions in a smaller contract (micro to reserve your buying power should the market turn against you). Below we have used the Micro Dow<\/a> as an example.<\/p>\n

Disclaimer: The placement of contingent orders by you or broker, or trading advisor, such as a \u201cstop-loss\u201d or \u201cstop-limit\u201d order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders<\/strong><\/p>\n

Don\u2019t Double Down…Instead, Build Incremental Positions<\/h2>\n

Here would\u2019ve been a smarter way to approach it:<\/p>\n

\"\"<\/a><\/p>\n

With a $5,000 account, you decide to risk 30% of your capital, or $1,500.<\/p>\n