COMPLETE

BEGINNER
FUTURES TRADING
GUIDE

By: Carlis Kanneh

Table of Contents
1. Introduction to Futures Trading
• 1.1 What are Futures?
• 1.2 Purpose of Futures Trading
• 1.3 Key Participants in Futures Markets
2. Understanding Futures Contracts
• 2.1 Definition and Structure
• 2.2 Contract Specifications
• 2.3 Micro vs Mini Contracts
3. How Futures Trading Works
• 3.1 Long and Short Positions
• 3.2 Opening and Closing Positions
4. Risk Management in Futures Trading
• 4.1 The Importance of Risk Management
• 4.2 Stop-Loss
• 4.3 Psychological Perks of Risk Management
5. Trading Platforms
• 5.1 Charting Platform
• 5.2 Trading Brokerage
6. Candlestick Basics & Types
• 6.1 What is a Candlestick
• 6.2 Bullish and Bearish Candlesticks
• 6.3 Different Types of Candlesticks
7. Technical Analysis (My Trading Strategy)
• 7.1 What is Technical Analysis
• 7.2 Supply & Demand
• 7.3 Fair Value Gap
• 7.4 Liquidity
8. Types of Markets
• 8.1 Bull Market
• 8.2 Bear Market
• 8.3 Ranging Market
9. Tips for Beginners
• 9.1 Start Small
• 9.2 Educate Yourself Continuously
• 9.3 Keep Emotions in Check
Introduction to
Futures Trading
1.1 What are Futures?
Futures are financial contracts that obligate the buyer to purchase, or the seller to sell, a
specified amount of an asset (commodity, financial instrument, or index) at a
predetermined price on a specified future date.

1.2 Purpose of Futures Trading

Futures trading serves various purposes, including speculation, hedging, and risk
management. Traders can profit from price movements going in either direction
(Up/Down).

1.3 Key Participants in Futures Markets

Participants include hedgers (seeking to mitigate risk), speculators (aiming for profits),
and market makers (providing liquidity).
 Understanding
Futures Contracts
2.1 Definition and Structure
Futures contracts are standardized agreements traded on organized exchanges. They
have specific terms, including contract size, tick size and price.

2.2 Contract Specifications

In futures trading, a contract refers to a standardized agreement between two parties to
buy or sell a specific quantity of an underlying asset at a predetermined price on a
specified future date. These contracts are traded on organized futures exchanges,
providing a marketplace for participants to engage in buying and selling.

• Standardization: Futures contracts are highly standardized, with predetermined terms

and conditions.
• Tick Size: this refers to the minimum price movement or increment by which the price
of a futures contract can change. It is a crucial component of the contract specifications
and is established by the futures exchange on which the contract is traded.
▪ Example: If the tick size for a particular futures contract is $0.25, then the
price can move in increments of $0.25. If the current price is $100, the
next allowable prices would be $100.25, $100.50, $100.75, and so on.

• Determining Profits and Losses: Traders need to be aware of the tick size because it
affects the calculation of profits and losses. Each tick represents a specific monetary
value, and movements in the futures price are measured in terms of ticks.

• Price: The agreed-upon price at which the underlying asset will be bought or sold is
known as the futures price. This price is fixed when the contract is initiated and remains
constant until the contract expires.
2.3 Micro vs Mini Contracts

Micro Contracts:

1. Contract Size:

• Micro contracts are the smallest in terms of contract size.

• They represent a fraction of the standard contract size, allowing for more
flexibility in position sizing.

2. Accessibility:

• Micro contracts are designed to attract retail traders and investors with limited
capital.

• They provide an opportunity for smaller market participants to participate in

futures markets without the need for substantial financial resources.

3. Tick Size:

• The tick size for micro contracts is generally smaller compared to standard
contracts.

• This allows for finer price granularity and smaller price movements.

4. Examples:

• Micro E-mini equity index futures contracts, such as the Micro E-mini S&P 500,
Micro E-mini Nasdaq-100, Micro E-mini Dow Jones, and Micro E-mini Russell
2000.

Mini Contracts:

1. Contract Size:

• Mini contracts are larger than micro contracts but smaller than standard
contracts.

• They offer a middle-ground option, providing reduced exposure compared to

standard contracts.

2. Target Audience:

• Mini contracts are often attractive to traders who want exposure to the futures
market but prefer a smaller contract size.
 • They can be suitable for retail traders and institutions looking for a compromise
between the accessibility of micro contracts and the exposure of standard
contracts.

3. Tick Size:

• Tick size for mini contracts is generally larger than that of micro contracts but
smaller than standard contracts.

4. Examples:

• Mini-DAX futures, E-mini equity index futures (though larger than micro versions),
and mini-sized contracts in various commodities.
 HOW FUTURES
TRADING WORKS
3.1 Long and Short Positions
In futures trading, taking a "long" or "short" position refers to the direction in which a trader
expects the price of the underlying asset to move. Here's an explanation of both terms:

Long Position:

• Definition: Going long, or taking a long position, means buying a futures

contract with the anticipation that the price of the underlying asset will increase.

• Expectation: Traders take a long position when they believe the value of the
asset will rise over time. Profits are realized if the asset's price increases, as the
trader can sell the futures contract at a higher price than the purchase price.

• Risk: The risk in a long position arises if the asset's price decreases, potentially
resulting in losses. However, the maximum loss is limited to the initial investment.

Short Position:

• Definition: Going short, or taking a short position, involves selling a futures

contract with the expectation that the price of the underlying asset will decline.

• Expectation: Traders take a short position when they believe the value of the
asset will fall. Profits are made by buying back the futures contract at a lower
price than the initial selling price.
 • Risk: Short positions carry the risk of losses if the asset's price increases. Unlike
long positions, where the maximum loss is capped, losses in a short position can
theoretically be unlimited if the asset's price continues to rise.

3.2 Opening and Closing Positions

1. Opening Position:

• Definition: Opening a position in trading refers to the initiation of a new trade

by either buying (going long) or selling (going short) a financial instrument, such
as stocks, options, or futures contracts.

• Process: When a trader decides to enter the market, they execute a buy order if
they anticipate a price increase (going long) or a sell order if they expect a price
decrease (going short).

• Purpose: Traders open positions based on their market analysis and trading
strategy, aiming to profit from price movements.

2. Closing Position:

• Definition: Closing a position in trading involves executing a trade to offset or

liquidate an existing open position. It can be done by selling a previously bought
asset (long position) or buying back a previously sold asset (short position).
 • Process: If a trader has a long position, they close it by selling the same quantity
of the asset. Conversely, if they have a short position, they close it by buying back
the same quantity of the asset.

• Purpose: Traders close positions to realize profits or cut losses. Closing a position
effectively ends the trader's exposure to further price movements in the asset.

Example:

• Suppose a trader buys 100 shares of a stock (opening a long position) at $50 per
share. If the stock's price rises to $60, the trader may decide to close the position
realizing a profit.

• On the other hand, if the trader sells short 50 shares of a stock at $70 per share
(opening a short position) and the stock's price falls to $60, the trader may close
the position realizing a profit.
 RISK
MANAGEMENT
IN FUTURES TRADING
4.1 The Importance of Risk Management
1. Preservation of Capital:

• Key Aspect: Risk management is primarily about protecting your trading capital.
By implementing sound risk management practices, traders aim to minimize the
likelihood of substantial losses that could severely impact their account balance.

2. Prevention of Emotional Trading:

• Discipline: Without proper risk management, traders may succumb to emotional

decision-making, such as revenge trading after a loss. Risk management
strategies help maintain discipline and prevent impulsive actions.

3. Optimization of Risk-Reward Ratios:

• Enhanced Profitability: By setting appropriate stop-loss levels and profit targets,

risk management allows traders to optimize their risk-reward ratios. This means
that potential profits are weighed against potential losses in a structured and
controlled manner.

4.2 Stop-Loss
A stop-loss order is a risk management tool used in trading to limit potential losses on a
position. It is an order placed with a broker to automatically sell or buy a security once it
reaches a specified price level, known as the "stop price." The primary purpose of a
stop-loss order is to protect traders and investors from significant losses in the event
that the market moves against their position.

Key components of a stop-loss order:

1. Stop Price:
 • The specific price at which the stop-loss order is triggered. Once the
market price reaches or goes beyond this level, the stop-loss order is
activated.

2. Trigger Type:

• Stop-loss orders can have different trigger types, such as a market order or
a limit order. A market order is executed at the best available price once
the stop price is reached. A limit order is executed only at the specified
limit price or better.

3. Execution:

• Once triggered, the stop-loss order becomes a market order, and the
trade is executed at the prevailing market price. In fast-moving markets or
situations with low liquidity, the execution price may differ from the stop
price.

4. Risk Management:

• The stop-loss order is a crucial tool for managing risk. It allows traders to
define in advance the maximum amount they are willing to lose on a trade.
This helps traders adhere to their risk tolerance and maintain discipline.

Example: Suppose an investor buys a stock at $50 per share. To manage potential
losses, they set a stop-loss order at $45. If the stock price falls to $45 or below, the stop-
loss order becomes active, and the stock is sold automatically. This way, the investor
limits their potential loss to $5 per share.

4.3 Psychological Perks of Risk Management

Implementing effective risk management in trading offers several psychological perks

that contribute to a trader's emotional well-being and long-term success in the financial
markets.
1. Reduced Anxiety and Stress:

• Knowing that there is a well-defined plan in place to manage potential

losses helps reduce anxiety and stress levels. Traders can approach the
markets with greater confidence, knowing that they have taken steps to
protect their capital.

2. Emotional Discipline:

• Risk management encourages emotional discipline by establishing clear

guidelines for when to exit a trade. This discipline helps traders avoid
impulsive and emotionally driven decisions that can result in significant
losses.

3. Increased Confidence:

• Having a risk management plan instills confidence in traders. They can

execute trades with the knowledge that they have considered potential
risks and have a strategy to mitigate them. This confidence is crucial for
maintaining a positive mindset during both winning and losing streaks.

4. Long-Term Perspective:

• Effective risk management fosters a long-term perspective. Traders who

prioritize risk management are less likely to be discouraged by short-term
losses, understanding that such losses are part of the overall trading
journey. This perspective contributes to resilience and perseverance.

5. Strengthened Emotional Resilience:

• Risk management helps build emotional resilience by preparing traders for the
inevitable ups and downs in the market. Knowing that losses are controlled and
manageable allows traders to bounce back from setbacks more easily.
Trading Platforms
5.1 Charting Platform

Tradingview.com is a free online charting platform that allows traders/investors to track

the price of financial assets and use technical analysis to make informed decisions on
the direction price may be headed in the financial markets.
5.2 Trading Brokerage

Tradovate is a futures trading brokerage that allows traders to buy/sell contracts at a

specific price to potentially gain a profit.
 Candlestick
Basics and Types
6.1 What is a Candlestick
A candlestick is a graphical representation of price movements during a specific time frame.
Each candlestick typically has four main components: the open, close, high, and low prices. The
body of the candlestick represents the open and close prices, while the "wick" or "shadow"
represents the high and low prices.

6.2 Bullish and Bearish Candlestick

• Bullish Candlestick: A bullish candlestick forms when the closing price is higher
than the opening price. It usually has a hollow or white body. This indicates that
buyers were in control, pushing the price higher.

• Bearish Candlestick: A bearish candlestick forms when the closing price is lower
than the opening price. It typically has a filled or black body. This signals that
sellers dominated during the given time period.
6.3 Different Types of Candlesticks
• Doji: A doji is a candlestick with a small body, indicating that the opening and
closing prices are very close or almost equal. It suggests market indecision and a
potential reversal.
• Hammer (aka Pinbar) and Hanging Man: These candlesticks have small bodies
with a long lower wick. A hammer occurs after a downtrend and suggests a
potential reversal to the upside. A hanging man appears after an uptrend and
may indicate a reversal to the downside.

• Engulfing Patterns: Bullish engulfing occurs when a small bearish candle is

followed by a larger bullish candle. Bearish engulfing is the opposite, with a small
bullish candle followed by a larger bearish candle. These patterns suggest
potential trend reversals.
• Morning Star and Evening Star: These are three-candle patterns. A morning
star consists of a bearish candle, a doji or small candle indicating indecision, and
a bullish candle. An evening star is the reverse pattern, suggesting a potential
reversal to the downside.
• Shooting Star and Inverted Hammer: These candles have small bodies and
long upper wicks. A shooting star occurs after an uptrend and signals a potential
reversal to the downside. An inverted hammer appears after a downtrend and
suggests a possible reversal to the upside.
• Marubozu: A marubozu is a candlestick with little to no wicks, indicating a strong
trend. A bullish marubozu has a long green body, suggesting strong buying
momentum, while a bearish marubozu has a long red body, signaling strong
selling pressure.
 Technical Analysis
My Trading Strategy
7.1 What is Technical Analysis

Technical analysis is a method used in trading and investment that involves analyzing historical
price charts and trading volumes to forecast future price movements. Traders who use technical
analysis, often referred to as "technicians" or "chartists," believe that historical price data,
patterns, and other market indicators can provide insights into the potential future direction of
an asset's price.

*BEFORE we deep dive into this section, there are THOUSANDS of ways to trade
using different indicators, trendlines, strategies etc. If I wrote every possible way, I
wouldn’t finish this guide till Jan 1, 2050 haha. THEREFORE, I will cut to the chase
and tell you exactly how I use technical analysis to trade using these 3 key
concepts.*
▪ Supply & Demand
▪ Fair Value Gaps
▪ Liquidity

• These concepts put together allow me to trade with the big institutions (big
banks) who move the market.

7.2 Supply & Demand

Supply Zone:

• A supply zone is an area on the chart where there is a concentration of sellers,

causing an excess of supply compared to demand. In a supply zone, sellers are
likely to outnumber buyers, leading to a potential reversal or a slowdown in the
upward price movement.

• When identifying these zones, look for a strong move DOWN (long body
candlestick) and draw a box on the candlestick prior. That entire area will
be your supply zone.
• Once these supply zones are created, they leave an unfilled order in the
zone. Price likes to eventually come back and collect these unfilled orders
to continue in the direction it was headed.

• Unfilled Orders are areas where the buying and selling order may
remain.

• This is a trading method where we can read and see when an

institution, big players, speculators, and also major banks in
the world place their position around a specific price.

• From the picture above, price came back into the supply zone, collected its
unfilled order that was left by the big institutions/ market players and
continued its way down.
Demand Zone:

• A demand zone is an area on the chart where there is a concentration of buyers,

causing an excess of demand compared to supply. In a demand zone, buyers are
likely to outnumber sellers, leading to a potential reversal or a slowdown in the
downward price movement.

• When identifying these zones, look for a strong move UP and draw a box
on the candlestick prior. That entire area will be your supply zone.

• Once these demand zones are created, just like the supply zones, they
leave unfilled orders. Price likes to eventually come back and collect these
unfilled orders to continue in the direction it was headed.
 • From the picture above, price came back into the demand zone, collected
its unfilled order that was left by the big institutions/ market players and
continued its way up.

7.3 Fair Value Gaps

Fair Value Gaps are most commonly used amongst price action traders and are defined
as instances in which there are inefficiencies, or imbalances, in the market. These
‘imbalances’ simply suggest that buying and selling are not equal.

• Fair Value Gaps are created within a three-candle sequence and are commonly
visualized on the chart as a large candle whose neighboring candles’ upper and
lower wicks do not fully overlap the large candle.
• In this 3-candle sequence, the wick prior and the wick after the strong
impulse candle did not touch. The gap in-between creates the fair value
gap.
 • Price came back into the fair value gap, collected it’s orders and headed in the
designated direction.

Fair Value Gap (Sell-Side)

• This is the same concept, except on the sell side. We had a fair value gap created
and price came back to retest it and headed back down in its designated
direction.
7.4 Liquidity
‘Smart money’ players understand the nature of this concept and commonly will
accumulate or distribute positions near levels where many stops reside. It is, in part, the
sheer amount of stops at key levels that allow a larger player to fully realize their
position. Once the level at which many stops are placed has been traded through, it’s
often that the price will reverse course and head in the opposite direction, seeking
liquidity at the opposite extreme.

There are two types of liquidity; Buy-side and sell-side.

• Buy-side liquidity represents a level on the chart where short sellers will have
their stops positioned.
• Sell-side liquidity is just the opposite. It represents a level on the chart where
long-biased traders will place their stops.
• In both cases, these levels are often found at or near extremes as the tops
and bottoms of ranges are often viewed as areas where traders are
‘proven wrong’ and, therefore, will want to get out of their trades.

(Here’s the hack and my little secret… since I know a lot of traders have their stop
losses at these levels and the market likes to manipulate price to go to these
liquidity levels. I will find a supply/demand or fail value gap trade setup and use
these liquidity levels as my price targets and get out the trade )
• Some traders went long at these levels and place their stop loss below. This
created sell-side liquidity. Since the overall trend is down and we have a fair value
gap set up to the downside, price likes to target these liquidity levels.

• In the picture above, price took out those buyers stop losses and we took sells
based off the fair value gap.
Here’s another example

• There is a demand zone below, so I’m looking for buys. There is liquidity above,
because that move down created buy-side liquidity. Why? Because traders who
took sells (short position) at that level put their stop loss right above. The market
is manipulated, and prices likes to take those stop losses out.

• In the picture above, the setup played out and price took out the buy-side
liquidity.
TYPES OF MARKETS
8.1 Bull Market
• A bullish market, or a bull market, is characterized by rising prices and an overall
optimistic sentiment among market participants. During a bullish market, buyers
(bulls) dominate, and there is a strong demand for assets. Traders and investors
anticipate further price increases, leading to an upward trend. Bull markets are
often associated with economic growth and positive market conditions.

• Key characteristics:

• Prices are rising.

• Buyers are in control.

• Higher highs and higher lows in price charts.

• Positive investor sentiment.

• Trading strategy: Traders in a bullish market often look for buying opportunities,
such as trend-following strategies or buying on pullbacks.
8.2 Bear Market

• A bearish market, or a bear market, is characterized by falling prices and a

generally pessimistic sentiment among market participants. During a bearish
market, sellers (bears) dominate, and there is a strong supply of assets. Traders
and investors anticipate further price declines, leading to a downward trend. Bear
markets are often associated with economic downturns or negative market
conditions.

• Key characteristics:

• Prices are declining.

• Sellers are in control.

• Lower lows and lower highs in price charts.

• Negative investor sentiment.

• Trading strategy: Traders in a bearish market often look for selling opportunities,
such as short-selling strategies or selling on rallies.
8.3 Ranging Market

• A ranging market, also known as a sideways or consolidating market, is

characterized by price movements within a relatively narrow range. During a
ranging market, there is no clear trend in either direction, and the price fluctuates
between support and resistance levels. Traders and investors may perceive a lack
of strong buying or selling pressure.
• Key characteristics:
• Prices move within a horizontal range.
• Neither bulls nor bears have clear control.
• Price consolidates without a clear trend.
• Sideways movement on price charts.
• Trading strategy: DO NOT TRADE RANGING MARKETS. WAIT FOR A CLEAR
DIRECTION.
TIPS FOR
BEGINNERS
9.1 Start Small
• Beginning with a small trading capital is a prudent approach for beginners. This
not only helps in managing risk but also allows traders to gain valuable
experience without risking significant amounts of money. Starting small enables
individuals to learn the dynamics of the market, understand their risk tolerance,
and develop effective trading strategies. It's crucial to focus on the learning
process rather than solely on profits in the initial stages. As traders gain
confidence and experience positive outcomes, they can gradually increase their
position sizes.
• Practice on a demo account for a few months until you feel
comfortable. Then go the prop firm route and try to pass a challenge.
They will give you capital to trade. I recommend Topstep as a prop firm for
Futures.

9.2 Educate Yourself Continuously

• Successful trading requires a commitment to continuous learning. The financial
markets are dynamic, and staying informed about market trends, economic
indicators, and trading strategies is essential. Beginners should invest time in
understanding fundamental and technical analysis, risk management principles,
and the factors that influence asset prices.

9.3 Keep Emotions in Check

• Emotional control is a cornerstone of successful trading. The volatility of financial
markets can evoke strong emotional responses, such as fear and greed. It's
crucial for beginners to develop emotional resilience and make decisions based
on a rational analysis of market conditions rather than succumbing to impulsive
reactions. Setting predetermined trading plans, including entry and exit points,
and sticking to them can help in minimizing emotional decision-making