The futures market can seem complex, but with the right information, anyone can participate. This comprehensive guide to futures markets download will provide a thorough overview of the topic, including technical analysis, trading systems, and fundamental analysis.
I. Introduction to Futures Markets
The futures market is a place where contracts are traded for the future delivery of commodities or financial instruments. These contracts are standardized, making them easy to trade, and are guaranteed by the exchange.
A futures contract is a commitment to deliver or receive a standardized quantity and quality of a commodity or financial instrument at a specified future date. The price associated with this commitment is the trade entry level.
Until the early 1970s, futures markets were restricted to commodities (e.g., wheat, sugar, copper, cattle). Since that time, the futures area has expanded to incorporate additional market sectors, most significantly stock indexes, interest rates, and currencies (foreign exchange).
A typical futures contract is an agreement to buy or sell an asset at a predetermined price on a specified date.
Delivery and Contract Specifications
Shorts who maintain their positions in deliverable futures contracts after the last trading day are obligated to deliver the given commodity or financial instrument against the contract. Similarly, longs who maintain their positions after the last trading day must accept delivery.
Here are some of the specifications of a futures contract:
- Exchange: The exchange where the contract is traded.
- Ticker Symbol: The unique code that identifies the contract.
- Contract Size: The standardized quantity of the underlying asset.
- Price Quoted In: The unit of measure for the price.
- Minimum Price Fluctuation (“tick”) Size and Value: The smallest increment in which the price can move.
- Contract Months: The months for which the contract is traded.
- Trading Hours: The hours during which the contract can be traded.
- Daily Price Limit: The maximum amount by which the contract price can change in a single day.
- Settlement Type: Whether the contract is physically deliverable or cash-settled.
- First Notice Day: The first day on which a long can receive a delivery notice.
- Last Trading Day: The final day on which positions can be offset.
- Deliverable Grade: The specific quality and type of the underlying asset that is acceptable for delivery.
II. Technical Analysis in Futures Trading
Technical analysis involves the use of non-economic data, primarily price data, to forecast future price movements. It is based on the assumption that prices exhibit repetitive patterns and that the recognition of these patterns can be used to identify trading opportunities.
Types of Charts
Different types of charts can be used for technical analysis, including:
- Bar Charts: A common type of chart that displays the high, low, open, and close prices for each period.
- Close-Only Charts: Charts that only show the closing prices.
- Point-and-Figure Charts: Charts that ignore time and focus on price movements.
- Candlestick Charts: Charts that add color and dimension to the simple bar chart.
Candlestick charts use color to visualize price movements, helping traders quickly identify potential trends.
Trends, Trading Ranges, and Support & Resistance
Understanding market trends is a cornerstone of technical analysis. Trends can be uptrends, downtrends, or sideways (trading ranges). Support and resistance levels are price levels where the market has previously found buying or selling interest.
Chart Patterns and Technical Indicators
Chart patterns are recognizable formations on price charts that can indicate potential future price movements. Technical indicators are mathematical calculations based on price data that can be used to generate trading signals.
Technical indicators incorporate one or more of the following five calculations:
- A smoothing function, such as a moving average or moving median.
- A comparison of the current data point to a specific past data point, as either a difference or a ratio.
- A comparison of the current data point to an average.
- A comparison of an average to another average of a different length.
- A comparison of the current data point to a past range.
III. Trading Systems in Futures Markets
A trading system is a set of rules that can be used to generate trade signals. It can help to eliminate emotion from trading and ensure a consistent approach.
Three Basic Types of Systems
- Trend-Following Systems: Systems that initiate positions in the direction of the prevailing trend.
- Countertrend Systems: Systems that initiate positions in the opposite direction of the prevailing trend.
- Pattern Recognition Systems: Systems that use specific patterns to generate trade signals.
Structure and Design
Technical Trading Systems and Performance Measurement should include the following:
- The Benefits of a Mechanical Trading System
- How to Evaluate Past Performance
IV. Fundamental Analysis in Futures Trading
Fundamental analysis uses economic data to forecast future price movements. It involves the analysis of supply and demand factors, as well as other economic indicators.
The interplay of supply and demand is a critical factor in determining prices in the futures market.
Supply and Demand Analysis
Supply-demand analysis can be used to identify potential trading opportunities. However, it is important to understand the limitations of this approach. One major pitfall to avoid in fundamental analysis is using prior-year estimates instead of revised statistics:
- Fourteen Popular Fallacies, or What Not to Do Wrong
Fundamental Analysis and Trading
Before you implement this method, you need to know some greater needs for caution and all the major pitfalls.
V. Spread Trading and Options on Futures
A spread trade involves the simultaneous purchase of one futures contract against the sale of another futures contract, either in the same market or in a related market. Options on futures provide the right, but not the obligation, to buy or sell a futures contract at a specified price.
Concepts and Mechanics of Spread Trading
- The Concepts and Mechanics of Spread Trading
- Spread Trading in Stock Index Futures
- Spread Trading in Currency Futures
Options on Futures
- An Introduction to Options on Futures
- Option Trading Strategies
VI. Practical Trading Guidelines
The ultimate goal is to follow a “planned trading approach” which includes the 7 steps below:
- Define a Trading Philosophy
- Choose Markets to Be Traded
- Specify Risk Control Plan
- Establish a Planning Time Routine
- Maintain a Trader’s Spreadsheet
- Maintain a Trader’s Diary
- Analyze Personal Trading
Seventy-Five Trading Rules and Market Observations
These are entering trades, exiting trades and risk control, other risk-control rules, holding and exiting winning trades, miscellaneous principles and rules and analysis and review.
Additionally, you can review more details via the “50 Market Wizard Lessons”
VII. The Journey to Success
This guide provides a foundation for understanding and participating in the futures markets. With diligence, discipline, and a commitment to continuous learning, you can increase your chances of success in this dynamic and challenging environment. Be sure to download “A Complete Guide To The Futures Markets Download” today.
Appendixes
- Introduction to Regression Analysis
- A Review of Elementary Statistics
- Analyzing the Regression Equation
- The Multiple Regression Model
