Q: I just read Trade Your Way to Financial Freedom. It’s a great book. It demystified the systems behind successful trading, explaining entry and exit strategies in straightforward language.

After reading the book, I have a question I’d like to ask about futures trading: If I’m following several different commodities, and planning to enter on a breakout to potentially catch a trend-move as described in the book, how do I decide between the different expiration months? Do I follow just the front-month contract for a break out? Or do I need to separately follow the various contract months of each commodity? What happens if the front-month contract, which has the most liquidity, hasn’t existed long enough to be tested for, say, a 20-day break-out?

Stock trading avoids this problem since stocks don’t expire. But futures seem to trend better, and it’s easier to go short, which is why I’m interested in futures trading.

A: We don’t have anyone on staff here that trades futures to answer your question with authority.  Even if we did, however, we don’t usually answer them straight out—that would be a disservice to you in the end.  We usually reply back to questions like yours with the following type of response: 

What are the objectives for your trading system?  How will you identify a trend?  When will you enter a trade and what portion of the trend are you trying to capture?  How will you know when the trend is over?  Have you gone back and checked historical charts to help you answer these kinds of questions?  I expect with answers to these questions you will have a good idea on how to find the best way to profit from the best way from front month or back month contracts. 

Finally, you point to some often cited beliefs in your last paragraph (i.e., futures seem to trend better and they are easier to short).  If those are strong beliefs of yours and the market yields evidence for them, then the requisite work to take advantage of futures trading will pay off for you.  Do you know and understand your other beliefs about futures versus stocks?  You might find some value in writing out all of your beliefs about the two.