“Back up and look at the big picture.” That’s good advice for futures traders. Moving averages help us sort through sometimes chaotic price variations to see what is really happening in the market. Moving averages allow us to see the forest through the trees. By stripping away price volatility by removing both unusually high and low price variations from consideration, moving averages show us the actual underlying trend.

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Moving averages are one of the oldest trading tools. Futures traders use moving averages to reveal the underlying trend behind short-term price variations. Moving averages are a valuable indicator that can be used with other indicators to trigger buy signals.

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Popularized by legendary futures trader George Lane, the stochastic oscillator (commonly called stochastics) is a timing indicator widely used by futures traders to indicate overbought or  oversold positions. Stochastics compares closing price to price range over a specified time period. The driving principle can be summarized as follows: (more…)

Futures traders come in all flavors but it’s basically a Neapolitan world. You can be a scalper, swing trader or a combination trader. Mindset and methodology generally determine in which sector of the futures trading world you’ll thrive.

Scalpers. Scalpers seek immediate gratification. They look for short-term market movements seeking to shave money off the bid/ask price spread. Holding each position for only a  very short period of time (often only minutes) to minimize risk, scalpers make small gains through rapid trading. (more…)

Futures contracts are complex financial instruments and trading them demands constant daily, even hourly, monitoring. When you trade futures, there are myriad shifting variables that must be monitored continuously. Trading futures is about minimizing risk and maximizing profits. Profits are often made on small price points in an interval of minutes. To make money, you have to be there, in the game, ready to grab an opportunity when it appears.

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We’ve spend some time lately talking about commodities. Anyone who trades futures on the commodity markets ought to know a considerable amount about what they’re trading. But commodities are not futures.

• Commodities are a class of assets that includes energy, metals, agricultural products, natural gas and oil, and other natural resources. Commodities are natural resources, actual physical objects with an inherent value of their own.
• Futures are investment vehicles through which you invest in commodities. Futures can also be used to invest in other asset classes such as currencies, bonds, interest rates, stocks, indexes, etc. Futures have no value in and of themselves. They are known as derivatives because they derive (or take) their value from the underlying financial instrument (i.e., the commodity, currency, stock, etc.)

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Even when the world is at its most turbulent, commodities provide a safe haven for futures traders. Commodities are inelastic goods. In economics, elasticity quantifies how price changes affect supply and demand.

Elastic goods exhibit a high correlation between price and demand. When the price of the good goes up, demand decreases. Elastic goods are generally less-essential goods, meaning that you can live without them or at least use less of them or substitute a less expensive option. The dance between price and demand can be complex. For example, when the cost of milk rises, people buy less milk and fewer milk products. Some people will stop buying milk altogether until the price comes back down. Families with young children who still need milk will serve their children less milk or milk with a lower fat content and, therefore, cheaper price tag. They may substitute enriched soy milk or calcium supplements and calcium-fortified breads and cereals to ensure their children get a full dose of bone-building calcium. Sales on cheese, ice cream and other dairy products will plummet in concert with how necessary they are perceived to be. Ice cream is considered a luxury so when ice cream prices rise, sales fall.

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To succeed as a futures trader, you need to think creatively about commodities. The story of Sam Brannan, California’s first millionaire, serves as an excellent example:

At the beginning of the 1848 Gold Rush, Sam Brannan, who owned a general store in Sutter’s Fort, discovered that John Sutter and James Marshall had discovered gold. Understandably, the discoverers wanted to keep the strike a secret. Brannan agreed, then quietly scoured northern California buying up every shovel, pick and pan he could find until he had cornered the market. He then went around town yelling, “We found gold!” and the Gold Rush was on. Hundreds of people flocked to northern California, all needing shovels, picks and pans to search for gold. And there was Sam, the only source for hundreds of miles around! Sam Brannan never lifted a shovel, never swung a pick, never shifted a pan in the search for gold, but he became the first millionaire of the Gold Rush — selling shovels.

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Futures trading is a risky business. The untrained, unwary, unknowledgeable, undisciplined or sometimes plain unlucky can lose a fortune — and in an agonizingly short time. In fact, the SEC requires futures trading websites to post a disclaimer concerning the potential risks involved in trading commodity futures. You’ll find a full disclosure statement on my Futures Trading Secrets website.

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We’ve been talking about charting basics lately and the signals charts give the futures trader. But signals are worthless if you fail to act. To be a successful futures trader you must not only know when, but have the courage to act. In futures trading, we call this pulling the trigger.

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