Steady Income from Day Trading Futures

As a means of publicising this site, I publish articles at It is interesting to read some of the other articles about trading.

Some of them have titles such as "Why you will never make money day trading". The articles maintain that intraday action is too volatile and unpredictable to enable traders to get the odds in their favour.

I find this a little amusing and a little sad. Most successful traders find a niche which suits their temperament and which they become good at. In the process of doing this they may try different vehicles and strategies which are unsuccessful. However, because they fail in a particular area, it doesn’t mean that it is impossible to make money in that area. All it means is that the trader wasn’t good enough when (s)he tried it.

For example, there isn’t much that you could teach me about various option strategies. Theoretically, I know how to make a lot of money with options, but in practice it never worked out for me. Buying out-of-the-money options doesn’t have enough winners for my temperament. Selling way-out-of-the-money options has plenty of winners, but really high stress levels on those few occasions when the options flirt with the strike price as the expiry date approaches. Fancy multiple option strategies look good, but trading costs are high. However, I do know traders who do well with options, so obviously money can be made if you have the right strategy and temperament.

Authors criticizing day trading are usually trading Forex. The day trader’s enemy is trading costs, and despite the "commission free" trading generally offered by forex brokers, trading cost is high because of the spread. If I were to try day trading forex, I would use futures contracts at the CME (Chicago Mercantile Exchange) during high volume periods.

However, I prefer markets with enough volume to ensure a tight spread, but not such a huge volume that the market becomes hard to read. The grains (soybeans, wheat and corn) fill the bill exactly for me. Equity indeces (Russell 2000, S&P 500, Nasdaq eminis and the Dow $5 contract) aren’t too bad, but I find them more difficult. I don’t like the very high volume bond market at all. I’m not saying you can’t make money in these markets, I’m just not good at it.

Share traders often find a similar effect whereby very high volume shares like Microsoft are harder to day trade than a middle of the pack S&P 500 company. Usually successful share traders watch a group of stocks which they like and feel confident with.

I have discussed the keys to successful day-trading  in other articles, but briefly they are as follows:

  • Understand how support and resistance works in the market.
  • Build a trading method utilising support and resistance levels. (The tactics you can apply near these levels are almost limitless.)
  • Back-test your method on independent data (not the same data you used to design it). Ensure it has a positive Expectancy and good frequency of trading opportunity.
  • Plan your money management strategy so that you know how much to invest in each trade without exposing yourself to too much risk.
  • Practice, practice, practice, so that you can execute your trading plan flawlessly every time the opportunity occurs. This is harder than it sounds when day trading. Things happen fast and there are a lot of things to think about.

The trader who does these things, and has the discipline to stick to the trading plan during winning and losing spells, will be successful. As many, many authors have written, trading is 90% psychology. The main enemies are your own lack of discipline and self-honesty.  Of course, the majority of day trading is done from the trading rooms of large investment banks and brokerages, and the professional traders involved are using somebody else’s money and therefore are not subject to the same levels of stress. You have to learn to perform as well as they do despite the additional anxiety of having your own money at risk.

As I have written previously, day trading has the great benefits of giving fast feedback, reduced risk exposure, and a much steadier income stream than longer term methods. (That’s not to say those methods aren’t successful. Large funds using trend following strategies have shown that they are.)

I suppose this subject could be discussed back and forth forever and a day. The acid test is to look at a trading record. For this reason, I have decided to publish my trade executions report at the end of each session starting from 1 Jan, 2008. That way, you, the reader, will be able to form your own views as to the profitability or otherwise of day trading. 

I hope you find this interesting, whatever the outcome!

See the regular posts in my Trading Diary if you would like to follow the results as they unfold. 



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