Directional Strategies · Futures Trading Guide
A trend method turns persistent price movement into a set of testable decisions. The rules must explain entries, exits and exposure before the next chart is visible.
Define the signal precisely
A trend rule might compare a completed daily close with a moving average or a previous range. Specify the lookback, session, contract series and when the signal becomes available. A close above an average is an observation, not proof that the next price will rise. Trend systems can suffer repeated losses in sideways markets.
Separate decision time from execution
Consider a hypothetical rule that buys after a daily close exceeds the previous twenty completed session highs. The earliest assumed execution must occur after that information exists. Filling at the same day’s earlier opening price would use future knowledge. Specify whether the order is placed at the next session, after a delay, or at an executable quote after the close.
Size the trade before judging its appeal
Suppose the illustrative entry is 100, the planned stop is 96 and the multiplier is $50 per point. Planned price risk is $200 per contract before costs. A $450 risk allowance with $20 estimated costs per contract permits two contracts under that estimate. Gaps, limits and liquidity can still cause a larger loss. A closer stop chosen merely to fit more contracts changes the strategy.
Evaluate the whole distribution
Record win rate, average win, average loss, drawdown and time in market. Trend following may rely on a small number of extended moves, so taking profits early can materially alter a tested method. Compare performance across different periods and plausible costs. Decide in advance how stops trail, when signals reverse, and whether an expiring position is rolled or closed.
Try it yourself
A completed closing signal is calculated at 17:00. A backtest enters at that day’s 09:00 price. What is wrong?
Show the worked answer
The entry uses information unavailable at 09:00. Move the simulated execution to a time after the signal becomes observable and apply realistic fill assumptions.
Further reading
- CME Group: Support and resistance
- CME Group: Position sizing
- Bailey and coauthors: The probability of backtest overfitting
Educational material. Prices, margins and strategy examples are hypothetical unless explicitly identified as contract specifications. They are not trade recommendations. Futures losses can exceed deposited collateral. Product terms and eligibility vary by venue and jurisdiction.
