Reading The Index Future Market

When new participants are just beginning to learn how to trade eminis, they often struggle with a basic understanding of the index future market. Success can only come when the novice trader understands the market, it’s current strength and weakness and how their position exploits this fluid, ever changing environment. Many newly minted traders focus only on the possible profits that can be attained trading futures contracts but to fail recognize market characteristics that can lead to disaster. Following market moves such as momentum plays can yield exceptional results but can also have disastrous results on trading accounts.

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When the market makes a move generated by a significant event such as an area of strong resistance broken through, this will attract crowds of greedy participants that focus on this brief period that generates upside pressure, all hoping to catch large gains from the move. When these market moves happen, most trading rules will go to the wayside with undisciplined and inexperienced traders letting greed overrule trading judgment. Unfortunately, when traders abandoned their trading system, losses and blown out trading accounts soon follow. Momentum events can disappear as quickly as they appeared leaving unsuspecting traders holding the bag.

Strategies that can be successful during momentum moves often lead the new trade into a false sense of trading prowess that can have detrimental effects in less climactic markets. Neophyte index futures traders will many time carry long positions into a momentum move when the market is topping hoping to ride the wave to more profits only to be whipsawed and hung out to dry. Adhering to a trading system and pre-defined trading rules is more important in these trading situations more than ever. When learning how to trade eminis, new traders should focus on reading the broader market and increase their index futures trading knowledge on how to adapt to rapidly to changing market conditions. By opening their eyes and using common knowledge to learn and utilize new profitable trade set-ups through testing, the new trader can acquire skills that other market participants seldom posses.

By joining together the general mood of the market and the current trend, the index futures market player can increase chances of finding profitable trade setups. By determining the current market trend, trade selection is much easier since the trader has tested set-ups in similar markets previously. However, make sure market conditions and dynamics fit the same time frame as the analytical test.

Players should short sell equally as easily as they open long positions. However, short selling is often a physiological barrier for many individuals since the concept is difficult to understand. Buying into a long position does not present difficulty as the concept is easily enough understood since people buy goods and service everyday, not unlike buying into a long position. However, short selling offers opportunity for participants to profit whichever direction the market is headed. Avoidance of short selling the futures market is omitting a profitable opportunity.

Successful futures traders begin each market session with a clear understanding of current market conditions. They acquire the necessary information that will influence the day’s session including market trend and direction, financial reports and geopolitical news that could have an effect on the market. After gauging the larger market and all internal and external influences, they will then scan for the most promising trade set ups that will likely drive the market for this current time frame. By evaluating the market as a whole, the index future trader can asses how to change their strategy to best reveal executable trades. The pre-market will very often determine market direction at the opening bell through the first half hour to hour of the session. The amount of contracts traded are determined by these factors or the trader could determine the opening hour is not conducive to taking a position at all. Many financial reports and news items are often released within the first hour of futures trading and will often set the tone for the day and dictate market direction.

By taking these factors into consideration before executing a trade, the market participant helps eliminate unexpected risks that can pop up and create broken trades and lost opportunity. By executing trades based on pre-defined parameters the trade increase his chance of success. Sometimes the trading participant can benefit by sitting out the first hour, especially when bulls and bears are in a tug-o-war for the day’s market direction. By sitting out the first hour of trading, the futures trader can often capitalize on moves once direction has been identified and ride the trend throughout the day and profit handsomely. By preparing himself to adapt quickly to changes in market sentiment when trading mini-sized contracts contracts, the trader can enhance his potential of success by recognizing moves before the momentum crowd jumps on board in a frenzy. By honing our trading skills, the futures market participant learns to recognize set-ups that offer increased opportunity. Learning to execute trades going long as well as short selling allows us to profit no matter what direction the market decides to move.

The financial markets are not for the undisciplined or the inexperienced. Only by careful study and learning to recognize opportunity when the market presents it can we be successful index futures trading.

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Breakouts And Index Futures Trading Strategy

Emini futures trading requires market participants to utilize strategies which increase their chances of avoiding broken trades and have proven to produce success and profitability. One of the most common trading strategies implemented by veteran traders is the breakout. In this article, we will outline the dynamics of a breakout and how to trade the breakout and increase the odds of trading success.

Major market declines can evolve into long basing periods which often produce failed rallies and multiple testing of previous lows. As continual re-testing takes place, buyer accumulation slowly shakes out the last of the sellers, the market begins to change character. Index future contract prices begin to rally toward levels of significant resistance as short term strength increases and the chart starts to reveal a series of green candlesticks with the closing tops near the candlestick highs. As this happens, the market begins to climb toward and through the area of resistance that produced prior failures.

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Mini-Sized Futures contracts must overcome downward pressure to begin a new uptrend. Bounce traders try to build a base but cannot gain enough traction and momentum to fuel a strong enough rally. However, many times this is the momentum players join in and help bounce players push the futures through resistance. As the contract begins to slowly break through resistance, the dinner bell rings and breakout players all jump on the bandwagon at the same time.

When the breakout gap appears on the charting landscape, a great deal of buying power is behind the move. However, the futures trader must exercise caution at this juncture in case the move does not produce heavy volume. Tremendous buying pressure must entice other traders to join in on the frenzy to increase price expansion. The breakout gap may rapidly fill and trap inexperienced traders when heavy volume fails to show up. Moves that do not gap and only produce strong volume surges print breakouts similar to gaps but support is not as dependable and force the contract to a new range rather than the tell-tale rapid rise of the gap.

Breakouts that only produce moderate volume often are excellent set ups for trading pullbacks. The uptrend path is marked by many obstacles of clear pockets and congestion that is left in the wake of the previous downtrends. The obstacles very often force the chart into dips that make excellent buying opportunities. The experienced trader recognizes the profitable zones quickly and is equally ready to react and execute the trade. As is often the case, price moves quickly past the top Bollinger Band right when price hits the strong ceiling, revealing the most likely turning point on the chart. When this happens when trading index futures, the trader should follow price back to normal support which should offer opportunity for low risk trade execution.

Trend following indicators will register price surges as market players jump on board building momentum. As volatility absorbs each wave and new rallies erupt, the trader should ignore dip set-ups and focus on catching powerful moves by shifting to the next lower time frame and finding small packets of support in the charting landscape. At this point, volume should peak as the trending waves reach the peak as price expansion often moves into a final spike as exhaustion set in.

The index futures market will then need to take in any instability generated by the quick movement in price, pausing to breathe as both price and volume drop sharply. At this time, consolidation take place and new ranges are tested to find new areas of support and resistance. Futures trading does require a working knowledge of candlestick patterns and to the experienced technician, this area will reveal common formations of pennants, flags and triangles. The appearance of these formations signify the return of the markets previous state and a excellent possibility of a new thrust in the same direction is expected.

Congestion tends to fluctuate between simple and complex candlestick patterns in a series of sharp waves. For example, after the first pullback, traders will notice the chart very often will reveal eight to ten candlesticks in a close pattern while the following congestion period shows a wide price range through twenty to twenty-five candlesticks. The trader should always look back at the last range to properly estimate the expected price action for the new congestion area. The trader should be cautious and trade defensively if the former pattern was simple and short.

When using this method, the trader should pay close attention to continuation patterns. Constricted chart ranges should be in proportion and should time the relative trends that preceded them. The trader should evaluate all chart patterns within the context of trend relativity. A constricted range exists only in the current time frame used by the trader. Arrange drawn through one individual time frame does not automatically mean trade conditions exist in other time periods.

Index futures trading offers excellent chances of profitability in uncharted territory. Futures markets at new highs produce unique momentum properties that can incite quick price movement as well as unexpected behavior. As old support and resistance areas disappear at new highs, there are few areas appearing on the chart to give the trader a road map to vector. Although possible trade set-ups abound, risk also increases in this highly volatile trading environment. Once the market completes the breakout to new highs, it completes overhead inventory and supply but the the struggle for newer highs continue. These strong markets often produce new tests and base building before returning to the strong uptrend. The experienced trader that has learned how to trade, will watch as this base building process develops through candlestick pattern formation.

As the futures market reaches new highs, it may return several times to test the boundaries of prior resistance levels. As the market completes these test, it creates a range or series of stepping stones before the trend resumes and surges forward or higher. The market can sometimes go immediately vertical when they enter new high breakout phases. The futures contract trade faces the challenge of doing his best to predict what the new high market will produce. At his point, it is wise for traders to let indicators reveal accumulation and distribution as well as candlestick formation guide their decision on trade execution. Price action either lags or leads accumulation. When accumulation leads price in the first move to new highs, odds are the new high breakout will imitate a new round of buying as new traders pile on an push prices higher with no basing period.

As trading pushes further into the days uncharted territory, the index futures trader should study existing chart patterns. The last area of congestion before the breakout occurred very often prints sharp patterns for the new move. The trader can locate these patterns in double bottom lows lying in the trading range underneath the breakout price area. The price range between the low and the previous resistance areas may reveal price targets for a rally soon to follow.

In the futures market, a strong move upward can occur for a extended time frame after it finally escapes the breakout area. Price may on occasion, print a strong third wave of buyers at the level of the final congestion low point. This buying thrust can easily blow past initial price predictions when the chart converges with large scale momentum buyers.

Index future trading is at it's best when trading the breakout. This type of trading offers a wonderful opportunity for traders to exploit the breakout and enjoy profits that would otherwise take day or even weeks to gain. Learning how to trade eminis effectively can be vastly improved on by the novice trader by joining our trading room. Veteran traders are available to explain the system that is designed to teach and most importantly, to be profitable.

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