Futures offer very high leverage, so unless the risk is managed diligently there is a very high probability of losing capital. Unlike stocks, futures are derivative contracts and thus a zero-sum game. For someone to make money in futures, someone with an opposite position must lose that money.

For example, the mini-Dow future is valued at $5/point. So, if you are short and the Dow goes up by 100 pts, you lose $500. Similarly, if the Dow falls by 100pts, you make $500.

If a trader (or an investor) feels the markets are overvalued and due for a correction, there are many strategies he/she can employ :

a) Exit all long positions and stay in cash, and wait for a better lower entry price, and/or

b) Short the underlying futures. If the market goes up, you lose money and when the market comes down you make profits.

c) Purchase inverse ETFs. Inverse ETFs work exactly opposite of ETFs – so when the index goes up the price of the inverse ETF falls and vice versa.
E.g. DOG is the inverse ETF that tracks the Dow inversely, and SRS is the inverse ETF that tracks the S&P inverse. These two are popular with conservative investors as well (even traded in IRA accounts) – especially to hedge the risk of falling markets.

c) Buy PUT options. If the markets go up your risk is limited, but when the markets fall the profits can be very significant (high reward/risk ratio). PUT options can be purchased for futures, inverse ETFs or individual stocks.
d) Additionally, manage your short-side risk through hedging. One may purchase CALL options, so if the market goes up when you are short, you may lose only a little amount of money.

As you said, Dollar Cost Averaging is also an excellent way of managing investments. The basic premise is that the underlying instrument is robust and will not become bankrupt in the future. Likewise, movements in price should provide opportunity for meaningful profit.

Of course, as with any strategy is, the key is to know when to enter and when to exit.

Can you elaborate on what you mean by “I am adding to my short position in Dow (8020).

In my previous field of Trust Investments, we didn’t “short” positions. I simply had to time dollar averaging in and out of the market when large sums were involved. Usually that was only when an account first opened, or when I had by circumstance a huge cash position to invest.

Much appreciated!

I so appreciate your perspective, though mine is slightly different. I still see bounce points at benchmarks of 7,500 ad 8,000, but it’s fun testing each other’s benchmarks The difference between 8,000 and 8,020 is not enough for us to quibble over.

I see the mid points as magnets and 7,500 can still be the magnet of today. Often when the market peeks over to the other side of the first number being different, whether that be 6,999 or 8,001, it springs back to the magnet point of 7,500…so we’re still “hanging in the 7s” until we get sufficiently past 8,500. That’s just how I choose to view it, and it seems to work for me.

I am adding to my short position in Dow (at 8020) and S&P500 (at 837).

7,924.56 +174.75 +2.25

“Today’s rally was a continuation of a rebound that began on March 10 and has pushed the Dow up 21%”

It’s a whole lot more fun than “whale watching”

I do not however see a huge corrections – perhaps a 10% modest correction.

Tick .. tock ..