Charting Basics: How Futures Traders Use Tails

Continuing our blog series on charting basics, today we talk about tails. It is essential for futures traders to be able to read and understand various charting forms and patterns at a glance. The ability to instantly decipher charting information is one of the hallmarks of a successful futures trader. When the market is moving, futures traders must have the ability to make split-second decisions. Successful futures traders learn to read and understand their charts at a glance. In this continuing series, we are explaining charting basics that are important to futures traders.

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.

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