Many traders new to futures trading make the mistake of thinking in terms of stocks. Futures trading is concerned not with individual stock performance but with the macro logic of the market. Futures traders watch the indexes, not the stocks. Remember, the market is always seeking equilibrium, constantly oscillating between previous highs and lows. Futures traders use support and resistance to gauge the range of the day and locate potential market turning points. Learn to successfully and consistently locate these turning points and the spread becomes your playground — and cash cow!
Support and resistance are the foundation of a whole arsenal of futures trading tactics.
- Support: The price level/area at which demand overwhelms existing supply and halts a decline.
- Resistance: The price level/area at which supply overwhelms existing demand and halts advance.
Support and resistance come in two flavors, major or minor. Major support occurs when the market is declining to retest a prior low; minor support, when declining to retest a prior high. Major resistance occurs when the market is rising to retest a prior low; minor resistance, when rising to test a prior high. The interaction of these indicators may seem confusing but is actually quite enlightening. Once broken through, major resistance becomes minor support. Likewise, major support, once broken through, become minor resistance. It is important to remember that major and minor support and resistance are not specific price points, but areas indicating low-risk opportunities to buy or sell.
The successful futures trader incorporates major and minor resistance and support into his signal system as buy/sell triggers. Areas of major and minor support should be included in your key buy setups. Include areas of major and minor resistance in your key sell setups. To learn more about developing successful futures trading triggers, click here to find out more about my Futures Trading Secrets study course.
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