Trading in Position - Futures How-to

Defining low-risk, high-reward trading is often simplified as the concept of “Trading in Position.” The entry and exit points of any trade are crucial, as they determine both drawdown risk and profit potential. A discretionary trader can analyze volume and price data to align with market consensus and logically confirm likely points of bias. When we study charts, volume, and price patterns, we are effectively researching the history of an auction. Market price movement is not random; it reflects a collection of highs, lows, control points of price agreement, accumulated volume, and much more. A simple example of this would be the previous day’s high or low.

Let’s theorize that the price of an instrument is trading below the previous day’s high but trending toward it. Long traders may view the previous high as a point of interest for taking profits, while short traders may consider it a level to open a position. When this situation occurs, we can observe the price behavior as it approaches the level. In a flow-driven, high-volume market with a bullish trend, the price may trade straight through the previous high and make a new one. Alternatively, the combination of profit-taking and short sellers may lead to a temporary break in the trend or even a reversal, driven by sell volume strength and buyer exhaustion.

Our goal, positionally, is to identify points of interest where the likelihood of long profit-taking and short entries could create an imbalance, leading to a price decrease and a possible low-risk short opportunity. Conversely, the same applies to the opposite side. If we have a point of interest, such as an intraday or previous day low, we can use it as a reference or potential area where short sellers may take profits, potentially being absorbed by longs and creating a possible low-risk long entry.

The difficulty of this theory lies not only in the analytical prowess and attention to detail required, but also in the discipline needed for patient entry and exit. It’s common for traders to anticipate great trades based on the imbalances described, only to fall prey to deceptive price action. This can adjust their perception of the original plan and lead to an undisciplined entry. This is where trading in position becomes significant. Trading out of position can lead to stop-outs, even if your directional bias is correct. In contrast, a solid onside entry with good positioning tends to create immediate profit potential for scalpers and provides a good start for intraday swing or even position traders. If your directional bias turns out to be incorrect, trading in position helps to minimize the loss.

Futures Trading is difficult. It's not only a measure of direction, but also of timing, velocity, volume, and other variables that influence the outcome of a trade. Learning to be patient and trade in position is critical to a successful trading plan.