Often traders take this to mean that the price must retrace or pullback from the high.  This is a big mistake, because mathematically, what is happening in the calculation of the indicator is that as each new bar is added to the price, another bar further back must be subtracted.  If the new bar is higher and the old bar is lower, you will get a classic divergence in the indicator.

Think of this phenomena of a fat man getting off a teeter totter with multiple small children on the other side.  Conversely if more and more small children get on the teeter totter, they can out weigh the fat man.

Another outcome of a Classic Divergence is that the price simply goes flat for a period of time, or you get a second or even third divergence.  Be cautious when trading divergences.  They can fool you, especially in a long up trend.

I encourage you to be observant of the strength of the divergences that occur when the trend that is changing is rapid or slow.  We have an excellent video that shows this effect  with a triple classic divergence.

We have attempted to give you a background in trading.  Overall I learned to trade from Dr. Alexander Elder’s Book and Workbook, “Trading for a Living” back in 1996.  I actually failed the tests in the workbooks several times before I got it right.  I still think that that book is a classic and in a class all by itself. 

A second principle I learned from Alex, is that trading is a triune skill of Mind, Money and Method.  It is the basis of our training program.  With the mental and money management the most important skills.  But like a three legged stool, if you cut off one leg, you can’t sit down.

In the Method area, which I will share with you one part of the method, you have three parts as well.  One of them is how to use Support and Resistance in your trading.  We use these daily Support and Resistance areas as targets.  Why do they work so well?  It is because other traders “Think They Work”.  Remember in your trading your job is not to think, but to observe what is happening right now.

Check out this short video on Support and Resistance  associated with Pivot Points and how we use it. 

The calculation for the new day are calculated from the High (H), low (L) and close (C) of the previous day.  Our recommended software calculates all of this automatically, however we use a trick to get a 24 hour Pivot and Support and Resistance Lines.  Here is the formula  used by floor traders.

Pivot point = P = (H + L + C)/3

First area of resistance = R1 = 2P – L
First area of support = S1 = 2P – H
Second area of resistance = R2 = (P -S1) + R1
Second area of support = S2 = P – (R2 – S1)  and so forth.

Now Support always becomes Resistance and Resistance becomes Support in the markets, so you have minor Support and Resistance in many places on your charts.  The trick is to know which on is the target, so as part of your money management, you should always select a level that offers at least a 3 to 1 win to loss potential..

There are many nuances to using Support and Resistance with other indicators, Fibonacci levels, Ema’s and other indicators.  However, once you master the skill of target shooting, you will be much more profitable.

For a detailed video of how our complete system work with all the indicators, please go to the Futures Trading Room

So here’s the question: If futures trading is so risky, why do I and so many others choose to take that risk? The answer is simple: Money. Trading commodity futures may be risky, but there is potential for enormous profit. Some of the world’s greatest fortunes have been built around commodities:

• Banking patriarch Mayer Rothschild amassed a fortune during the Napoleonic Wars by hoarding and distributing gold bullion to fund the British.
• John D. Rockefeller, Sr., in his day, the richest man in America, built his impressive fortune on oil, forever changing the global oil industry through creation of the Standard Oil Company.
• Self-made steel magnate Andrew Carnegie consolidated the American steel industry, founding the company that would eventually became behemoth U.S. Steel and in the process accumulating a fortune second only to Rockefeller’s.
• Abdel-Aziz Al-Saud, the first king of Saudi Arabia, created a nation and amassed unbelievable personal wealth through consolidation and control of crude oil and natural gas.
• Lakshmi Mittal, the Indian steel magnate, used his knowledge of the steel industry to become the fourth wealthiest person in the world in 2004.
• In 2005, legendary oil man T. Boone Pickens made a cool $1.4 billion betting on the price of oil and natural gas.

Most of us who trade commodity futures will never reach the storied peaks of the world’s legendary commodity kings, but there are plenty of commodity traders who have made a very nice pile through steady trading. There is plenty of “gold” to be found trading futures on the commodity markets. All you need to do to build your own fortune is to consistently make more than you lose.

With the right system, the right signals, the right tools, the right attitude and some patience and persistence, you can “win” as a futures trader. I’ve already done it and I can show you how. If you want to learn the skills you need to succeed as a futures trader, click the link for complete information on my Futures Secrets Trading System. Read testimonials from satisfied clients, now successful futures traders themselves. Click here for details on Futures Trading Secrets.

Futures traders usually calculate and chart several moving averages of various time variations (5-day, 20-day, etc.) for use as indicators. Short-term moving averages are more sensitive to price change, but early signals may proof to be false. Long-term moving averages respond more slowly, but there is the danger of missing the trend by waiting too long. By comparing short, medium and long-term moving averages, futures traders can spot probable trend changes. The challenge is to determine the combination of time variations that will create that optimum balance that results in reliable indicators.

Watch your moving averages for these signals:

• When a faster average crosses above a slower average, buy.
• When a faster average crosses below a slower average, sell.
• When the daily close is below either moving average, offset long positions.
• When the daily closes is above either moving average, offset short positions.

One important caveat about using published moving averages for information or comparison: You cannot assume that the market will behave today the way it did yesterday!

Visit Futures Trading Secrets for more information on Bill McCready’s trading system.

A simple moving average is the average of a series of closing prices over a set period of time. For example, to determine a 3-day moving average of a commodity, the closing prices for three consecutive days are added together and divided by 3. A 20-day moving average would add the closing prices for 20 days and divide by 20. The “moving” is created by re-adding and re-dividing each day. In recalculating, the earliest closing price is dropped and the newest closing price is added before the figures are averaged. In our example, you are always averaging 3 prices for the three most recent consecutive days; however, those days are progressing in time through the month; therefore, the average is “moving.”

Because they use information that has already taken place, moving averages are “lagging” indicators. They are also “trend following” indicators that are most useful in trending price patterns in which an uptrend or downtrend is firmly entrenched. Moving averages often serve as both support and resistance points.When graphed, horizontal, or “flatline” moving averages have no predictive value.

The most common moving averages, those touted on the financial networks are 20-, 40-, 50-, and 200-day averages. Also effective are 10-, 30- and 100-day averages. Some traders create their own moving averages at intervals that appeal to them: 12, 18, 21, etc. days. Determine the time periods you believe will be most effective and stick with them. As a rule of thumb, limit your charts to no more than 4 or 5 moving averages per chart to avoid confusion.

Day traders often use shorter moving averages based on Fibonacci numbers, such as 5, 8, 13, 21 or 34.  These moving averages, especially if they are exponential moving averages (EMAs) can be very effective on short time frames.

For more information go to Futures Trading Secrets

• In an uptrend, as prices rise, the closing price rises to the top of the recent price range.
• In a downtrend, as prices fall, the closing price drops to the bottom of the recent price range.

In charting, the stochastic oscillator uses two lines to give a single signal. The major line (%K) is usually depicted as a solid line. The second line (%D) is often depicted as a dotted line and represents a 3-day moving average of %K. Futures traders watch the %D line closely for major trading signals. When %D crosses %K, the intersection of the two lines indicate buy/sell points. Use the following rule of thumb to read stochastics signals:

• When both the %K and %D lines are below 20 and the faster %K line crosses above the slower %D line, BUY.
• When both lines are above 80 and the %K line crosses under the %D line, SELL.

The two lines rise and fall in tandem between 0 and 100. Readings above 80 are overbought; those below 20 are oversold. Savvy futures traders will watch for divergences which can indicate coming price trends over the next few time periods.

Futures traders value stochastics for its accurate findings. Easily understood, even by novice traders, stochastics provide valuable indicators for making good entry and exit decisions.

The Gap

One of the most informative and most watched for charting events, gaps form the basis for numerous futures trading strategies. Also called a window, gaps appear as a void or space — i.e., a gap — on a chart indicating that no trades have taken place. Gaps alert futures traders to the imminent arrival of a major turning point in the market.

There are two types of gaps that futures traders look for:

• Upside gaps appear when the opening price of the current bar is above the closing price and/or high of the previous bar.
• Downside gaps appear when the opening price of the current bar is below the closing price and/or low of the previous bar.

What gaps tell futures traders: Gaps are usually filled fairly quickly after appearing. Gaps can serve as points of price support and resistance, stopping and/or reversing upward and downward market trends. They can also help futures traders differentiate between market movement driven by professional traders as opposed to that caused by amateur trading.

• Upside gaps that occur after several down bars are signs of early professional buying in response to overselling. An upside gap that appears after several up bars indicates late buying by amateur traders.
• Downside gaps that occur after several up bars are signs of early professional selling in response to overbuying. A downside gap that appears after several down bars indicates late selling by amateur traders.

If you want to learn more about charting techniques from a master futures trader, click here to find out about my Futures Trading Secrets System.

The Tail

In charting, a tail indicates the occurrence of a shift in the balance of power between buyers and sellers. A topping tail shows sellers in control of the market. It points toward the period high and shows an initial upward move that quickly gives way to a downside drop. Conversely, a bottoming tail points toward the low and begins with a market drop that quickly reverses into an upturn. It indicates that buyers control the market.

What tails looks like:

• In a western bar chart, a bottoming tail shows a smidgen of bar above close-together arms with a long length of bar below. A topping tail shows just the opposite with the smidgen at the bottom and a long length of bar above the arms.
• In a candlestick chart, the real body (cylinder) is very short and squat, indicating a high and low nearly at the same point. In a bottoming tail, the body is dark or black with the tail above the body being extremely short and the one below, long and trailing. In a topping tail, the real body is white or light with a long tail above and a minute tail below the cylinder.

What tails tell futures traders:

• Tails indicate changes in control of the market, or shakeouts. A bottoming tail shows buyers in control while a topping tail shows sellers in ascendancy.
• Tails indicate where expert traders are quietly manipulating the market and where you might get in on the action. A topping tail shows where experts are dumping holdings; a bottoming tail, where they are accumulating.

If you want to learn more about charting techniques from a master futures trader, click here to find out about my Futures Trading Secrets System.

The Reversal Bar (RB)

In charting, a reversal bar shows an initial, often sharp, move in one direction, followed by an abrupt turn, ending the period in the opposite direction from which it started, and below the starting point. In a bull market, after an initial downturn, the reversal bar will turn upwards and close near the period’s high and above the opening price. In a bear market, the opposite is true. After an initial rally, the reversal bar will turn downwards and close near the period’s low and below the opening price.

What a reversal bar looks like: 

• In a western bar chart, the vertical bar is long with the protruding arms fairly close together. In a bull reversal, the arms will be at the top of the bar; in a bear reversal, at the bottom.
• In a candlestick chart, the real body (cylinder) is quite short and squat, nearly square, indicating a high and low that are nearly at the same point. In a bull reversal, the real body will be white or light and the top tail will be extremely short; the bottom tail, very long. In a bear reversal, the real body will be black or dark and the top tail will be long; the bottom tail, quite short.

What a reversal bar tells futures traders:

• A reversal bar indicates a market shakeout.
• A bull reversal bar indicates that market control has moved from sellers back to buyers; a bear reversal bar shows control shifting from buyers to sellers.
• A reversal bar predicts an imminent sharp turn in the market. It can also herald a coming change in the market trend.
• Market changes that follow a reversal bar are generally more potent and reliable.

If you want to learn more about charting techniques from a master futures trader, click here to find out about my Futures Trading Secrets System.

The Narrow-Range Bar (NRB)

In charting, a narrow-range bar is a bar with a smaller than normal range between the high and low. If you see a narrow-range bar on your charts, it indicates a dramatic decrease in market volatility and generally heralds a coming turn in the market. This is important to futures traders because strong moves often emerge from periods of low volatility. The sight of a narrow-range bar on your charts alerts futures traders that the winds of change are about to blow.

What a narrow-range bar looks like:

• In a western bar chart, the vertical bar is short and squatty, the protruding arms fairly close to each other.
• In a candlestick chart, the real body (cylinder) is so short it’s nearly square.

What a narrow-range bar tells futures traders:

• Buyers and sellers are nearly equal in power.
• Occurring after normal range bars, it indicates the imminent occurrence of a strong turn in the market. A market turn after the appearance of a NRB is generally more reliable.

If you want to learn more about charting techniques from a master futures trader, click here to find out about my Futures Trading Secrets System.