To be able to make money when trading in the futures market you must be able to forecast where the price of the asset would head in the future. It is not important that the asset price should only rise for you to be able to make a profit in the market. In fact, you can also make money when the asset price falls. This is known as short selling. One can make money in the market by going long in the market if he thinks that the market is bullish. One can also make money by short selling the market if his long-term view is that the prices will fall in the future.
When the trader believes that the price of the asset will rise in the future then he will consider going long. The approach is the same as you would trade stocks. You buy the asset and hold it to make a profit. The trader will buy the asset and sell it in the market at a higher price. The difference between the buy and the selling price is the profit or the loss that he makes. If the selling price is higher than the buy price then he makes a profit. If the selling price is less than the buy price then he makes a loss.
The long traders have a bullish outlook on the market.
If the futures trader believes that the asset prices will fall in the future then he considers entering a short position in the market. The trader will sell the asset at a price and then buy it back from the broker at a future date. If the price of the asset falls then the trader makes a profit, which is equal to the selling price minus the buy price. If the price of the asset instead goes up in value then the trader makes a loss on the trade. The loss is equal to the buy price minus the selling price.
The trader takes a short position when he has a bearish outlook on the market.
Where to buy and where to sell in the market
It is important to not just have a view on the market. A trader also needs to know where to buy and where to sell in the market.
Demand or support- This is the level where the maximum buyers are positioned. It is here that you need to be a buyer in the market. So look for support levels on the chart and buy the asset.
Supply or resistance- This is the level at which you need to be a seller in the market. This is where the maximum sellers have positioned themselves. So look for the resistance levels and sell the asset in the market.