Understanding Dow Futures – Part 10

Some people may wonder if technical analysis futures trading is the same regardless of the market that you are trading. Well, at first, the answer may seem like it is. After all, most technical analysis is predicated on data derived from a contract. However, there are at least a couple of differences between doing technical analysis on the futures market and any other market that may be considered.

Futures are traded in contracts which relate to a specific grade and amount of the item the futures contract represents. And, this is deliverable at some time in the future as determined by the month of the contract.

This is very different from trading a stock. We know that the stock of a company represents the equity of the company. But, we have no idea what it really represents other than the dollar value of the share.

Technical Analysis for Futures

That being said, does this mean that we can’t use the same type of technical analysis on futures as any other market? After all, so many technical analysis futures trading platforms deliver the same indicators as could be used for stocks or Forex. But, that would imply that there is something similar among the markets, right?

Well, fortunately there is one basic underlying premise to all of these markets (futures, stocks and Forex) that is similar. People come together for the sole reason of buying or selling something. And, the value of what is traded can be determined with absolute certainty at any time.

Since this is the case (and as a basis for our technical analysis futures trading decision), we can create a price chart based on the actions of the people participating in these markets at any point in time. So, the question may become, why would the actions of these traders be important enough for us to chart?

Well, if the underlying catalysts that causes these markets to move can be found in the actions of the people who participate in them, then we can begin to rationalize that is what these people do that will either cause the value of the item being traded to rise or fall. And, while we can’t really tell what these people are thinking, we can definitely tell what they are doing.

This is the cornerstone of technical analysis for me. One of the best ways to connect the psychology of the market to the fluctuations of the price chart, in my opinion, is a method called the Elliott Wave. Traders have studied this for years and would never trade without it.

While there isn’t any magic bullet in trading, implementing the Elliott Wave in trading has allowed traders to trade with the market trend rather than fight it. And, as result of this, traders find themselves able to manage emotions in trading.

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