With the mechanics understood, we can run actual strategies. Futures are a natural home for systematic directional trading: they are liquid, leveraged, and — crucially — as easy to short as to long (no borrowing, no restrictions). That symmetry lets a strategy profit in both up and down markets. Here are the three classic families; full runnable code lives in the linked strategy articles.
Trend following
The oldest and most robust systematic idea: ride sustained moves. A simple version is a moving-average crossover — go long when a fast MA crosses above a slow one, and go flat or short when it crosses below:
def ma_crossover_signal(prices, fast=20, slow=50):
import pandas as pd
s = pd.Series(prices)
f, sl = s.rolling(fast).mean(), s.rolling(slow).mean()
if f.iloc[-1] > sl.iloc[-1]: return "long"
if f.iloc[-1] < sl.iloc[-1]: return "short"
return "flat"Trend following is the backbone of the managed-futures / CTA industry precisely because commodities and indices have real, persistent trends (driven by supply cycles, macro regimes, momentum). It wins by catching the occasional big trend and cutting the many small losers quickly. The full build — entries, exits, position sizing, results — is in the moving-average crossover article and the momentum / trend-following article.
Breakout
A close relative: enter when price clears a recent range — for example, buy when it makes a new 20-day high, short when it makes a new 20-day low — betting that the breakout continues into a trend. The classic Turtle traders ran exactly this on futures. Breakouts work for the same reason trends do (commodities trend), and fail the same way (false breakouts in choppy markets), so they pair with a stop and sensible sizing.
Mean reversion
The opposite bet: fade stretched moves, expecting price to revert to an average. Go long when price is unusually far below its mean (oversold), short when far above (overbought). Mean reversion works better on range-bound instruments and spreads than on strongly trending commodities — fading a real commodity trend (a crude spike, a gold run) can be dangerous. It shines in relative-value and pairs contexts; see the mean-reversion / pairs trading article.
The discipline is the same as always
Whichever family you pick, the systematic discipline does not change:
- A clear, mechanical rule — entry, exit, and what makes you flat. No discretion in the heat of the moment.
- A stop on every trade, and risk-based sizing (Lesson 10) — small, fixed % of capital per trade, never by how much margin the exchange allows.
- Honest backtesting — on a back-adjusted continuous series (Lesson 6/11), with fees, STT/CTT, slippage and roll yield modelled. A trend system that looks great before costs often loses after them.
- Match the strategy to the instrument — trend/breakout for trending commodities and indices, mean reversion for range-bound ones and spreads.
Futures’ leverage makes all of this amplified — great when the rule has an edge, brutal when it does not — so prove the edge on paper, with costs, before risking real money.
Pitfalls
- Mean-reverting a strong commodity trend. Fading a crude or gold run because it “looks stretched” can be ruinous. Mean reversion suits range-bound instruments and spreads.
- Backtests that ignore roll yield and costs. In contango the roll bleed alone can flip a winning trend system to a loser. Model it (Lesson 6).
- Over-sizing on leverage. The same crossover that is fine at 1× risk blows up at 8×. Size by risk, always (Lesson 10).
Recap
Futures suit systematic directional trading (liquid, leveraged, easy to short). The three classics: trend following (ride sustained moves — the CTA backbone), breakout (enter on a range break), and mean reversion (fade stretched moves — better on range-bound instruments and spreads). The discipline is unchanged: a mechanical rule, a stop, risk-based sizing, and honest backtesting with costs and roll yield. Full code is in the linked strategy articles.
Next: Lesson 8 — Spreads & Arbitrage, the lower-risk, relative-value side of futures.