This article on Life of a Day Trader is the opinion of Optimus Futures.

The life of a futures day trader can be exciting and challenging. You don’t have to answer to a boss, commute anywhere, and can set hours for as long or as short as wanted.

And while it’s not easy, very few professions allow you to potentially write your own ticket.

You can feel on top of the world when you’re making money. On the other hand, when you’re not (and there will be times you don’t, perhaps more than times that you do) it can be lonely, frustrating, and outright demoralizing.

Optimus has been in the futures industry for years. We have seen a number of traders come and go. During that time, we’ve observed a wide range of trading styles and approaches. In this article, we’ll share with you what we believe it’s like to be a futures day trader for most people and discuss what we feel are some of the essential elements needed to be successful.

As a quick note, throughout this piece we will work on the assumption that our hypothetical trader is living in the Eastern time zone of the United States. Although futures markets trade virtually 24 hours a day, this article narrows the focus to a typical day for someone in that geography.

Choosing Your Market

Today’s futures and commodities markets offer many different trading opportunities to traders. For example, they can access interest rate markets, energy, metals, grains, softs, index futures, and even cryptocurrency products.

However, it can be incredibly challenging if you choose to trade all these markets at the same time. Most traders pick only a few – ones they are familiar with or are interested in.

Each product is different in regard to leverage, volatility, liquidity, peak trading hours, and overall opportunities. It is hard to be familiar with them all at the same time.

Whatever market or markets you choose, become familiar with the catalysts that drive it and develop a game plan before you start trading it.

If you’re risk averse, you’ll want to avoid volatile commodity products and stick to ones with less variance.

In our opinion, you should also always try to stick with products that offer relatively deep liquidity like T-Bonds, T-Bills, the E-Mini S&P 500, and Crude Oil. You’ll also probably want to avoid markets where slippage can be high or frequent, examples being Palladium or Bitcoin futures.

If, for whatever reason, you feel like you have an edge in a market that isn’t very liquid, you will need to become much more skilled in managing your order entries and exits due to liquidity and capacity issues.

ALSO READ | Why You Should Only Trade the Most Liquid Futures Contracts

Pre-Market

Each futures market is dynamic. The catalysts that impact the E-Mini S&P 500 will most likely be different from the ones in Heating Oil. Regardless of what futures market you trade.

Many futures day traders will spend their morning catching up on the latest events overseas and trying to decipher their impact on the market they trade.

For example, if you want to trade the E-Mini S&P 500 futures, you might get up 2-3 hours before the New York Stock Exchange opening bell.

You’ll want to read up on international markets and note if any economic events on the calendar have the potential to shift the market.

During earnings season, companies will typically announce before the opening bell and after the market closes.

If a large company like Exxon, Apple, or Microsoft is set to report earnings, you’ll want to be aware of it because it could move the indices depending upon the companies weighting in that particular financial product.

Some events carry more weight than others. If the FOMC is set to have a meeting, you can expect index futures to trade lightly leading up to the event and greater volatility once the FOMC announces its decision.

Being familiar with the news and catalysts can only help you, even if you are a price-action trader. Remember, at least in theory, markets are highly efficient and all news or other data points are being factored into the market in near real time. You don’t want to be surprised to the extent you can help it.

Traders react to news and headlines; the last thing you want is to get caught off guard.

Once you’re up to speed, you want to start developing a trading plan.

If you trade price action, that means outlining the levels you want to be a buyer or seller. Moreover, you want to detail how many contracts you’ll be trading and your profit target and loss.

It’s easy to get emotional about trading when money’s on the line. Many traders jump into a trade without a plan.

By predetermining your profit and loss targets, you’re more likely to follow through.

The first set of economic data releases often happens around 8:30 a.m. est. This can inject extra volatility.

Even if you don’t plan to trade this early, it’s important to be aware of what the news was and the market’s reaction.

The Opening Bell

Also known as the opening auction, the opening bell is usually one most liquid times to trade a futures product. However, it can also be the most volatile.

That’s why it’s critical you have a trading plan in place before you enter a trade.

Some traders decide not to trade the opening bell due to the volatility and wait half an hour to avoid any so called “fakeouts” where price quickly moves in one direction and then reverses or to see if a trend may emerge.

If you’re someone who is looking to scalp in and out of trades quickly, trading the opening bell can offer plenty of opportunity but only for those willing to accept the risk and who have perfected their craft as a scalper.

Traders often define the opening range as the first thirty minutes of the day. Should stocks trend above the opening range, it may forecast a bullish bias, and below the range would forecast a bearish bias.

In addition to the early morning data releases, the next most frequent time for economic headlines comes around 10:00 a.m.

Similar to premarket news, these events can inject more volume and price change in a short period of time.

Trading Mid-Day

Most experienced traders avoid midday because liquidity tends to dry up, and price action tends to be choppier.

The more experienced you are, the more you can break the rules and potentially get away with it. But early on, you want to be disciplined with your decision-making. Deviating from a plan is often what turns potential winning trades into significant losers.

If you’re a new trader, you probably want to limit the number of trades you put on during mid-day. It’s very easy to fall into the bad habit of over-trading which can increase trading costs and exposure to the market.

The more decisions you make during the trading day, the more likely you’ll get decision fatigue and make an error.

One way to avoid or limit decision fatigue is to prepare a trading plan and know when to step away.

For example, let’s say you want to buy crude oil futures because you feel they’ve hit a key area of support. You’ll want to outline the level you want to buy and set at least two targets for where you might want to exit the trade.

The first target is where you’ll take profits, and the second is the level you’ll get out if you’re wrong. New traders often only consider where they will take profits forgetting that they are just as likely to lose with a trade as to win.

Some traders will jump into a trade without having targets in mind. When you do this, it increases your chances of trading emotionally. We have found emotional traders typically don’t last very long in such highly competitive markets.

Instead of focusing on the price action, you focus on your PnL when you get emotional.

It’s easy to let this happen if you sit in front of your computer all day.

That’s why many traders will physically remove themselves from the screens midday for a couple of hours unless they have open positions to monitor. While not physically demanding, trading takes a major toll on your mental health.

The Closing Bell

The closing bell is usually the most active market period next to the market open.

And it’s easy to understand why.

If you’re a day trader, you have to decide whether or not to hold your position overnight, which brings about a whole new set of risks and challenges.

ALSO READ | Why Futures Traders Should Not Hold Day Trading Positions Overnight

Of course, most day traders will close out their positions and go to cash at the end of the day. This allows them to avoid overnight risk and start the next day fresh. Holding positions overnight can cause sleeplessness and potential situations where you may not be able to exit a position. Day traders avoid getting themselves into this position at almost all costs.

After Market Hours

Most futures markets close from 5:00 p.m. – 6:00 p.m. est. Some will close from 4:15 p.m. – 4:30 p.m. as well

These are important considerations when you decide whether to trade after the close of the main session.

Most traders opt to do their ‘ post-game analysis’ in the afternoons.

These folks journal their trades and analyze them to see if they were executed as planned and whether their thesis was correct.

Keeping a trade journal helps traders to figure out what they are doing right and wrong. It’s also good practice to look at setups and trades you missed.

Optimus Flow now includes a free trading journal. 

If you’re unsure about what to journal, here are some tips:

Trade Information: When the trades were made, whether you bought or sold, number of futures contracts, holding period, and profit/loss.

Trade Thesis: In this section, you will write about why you got into the trade and explain your edge.

For example, let’s say E-Mini S&P 500 was up 2% on a rumor that the Fed might slow down rate hikes.

However, an hour later, the Fed Chairman denied the story. Some traders might start shorting ES futures off that headline.

Their thesis is that the futures rose on a belief that turned out to be false, and because of that, ES should sell off.

Well-Being: In this part, you want to write down how you felt going into the trading day.

For example, were you tired/refreshed or distracted/focused? Did you start your day early/late/on time?

Some traders can’t perform if they are hungover or have had a bad night of sleep. Others don’t trade well without coffee or breakfast.

Find out what works for you and doesn’t, and focus on winning.

Execution: Before every trade, you should have your risk/reward mapped out. For example, I’m going to get in at this price and out here if I am wrong.

Once you know your execution strategy, compare it to how you traded your plan.

For example, let’s say you wanted to exit your long-sliver contract at $23, but for whatever reason, you got out at $22.50.

The main reason why traders journal is because they want to identify their strengths and weaknesses.

Ideally, when you have enough trades under your belt, you’ll want to focus on your core strengths.

Inexperienced traders believe they must be good at trading all markets or all setups. That’s almost always not true. Like other professions, trading takes a high level of skill and discipline to succeed. It is exceptionally rare to find a person who can effectively use the same approach across all markets.

For most, you’ll want to focus on your strengths and eliminate whatever isn’t working for you entirely.

Successful traders have a business-like approach to their trading. It is methodical. Often boring. It almost never involves emotion. If you want long-term success, you’ll have to adopt that thinking.

In Summary

While being a futures day trader offers market opportunities, It requires hard work, mental and physical discipline, and the right trading technology. Trading is difficult and challenging.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.