the main Loans

Technical analysis of futures: we effectively use the exchange asset. Special technical tools. What information an individual trader must have in order to execute a market order

The success of trading on the exchange is based on financially accurate calculation and competent analysis, not randomness. To carry out operations on the RTS index futures market, such instruments as price charts and the volume of transactions, as well as a table with quotation volumes, are used.

The chart of the price and trading volume of the RTS futures, used since December 2013, as the main tool for determining the real situation on the market. The calculation is based on the actual fluctuation in oil prices.

Futures on the RTS index is directly related to the performance of the MICEX-RTS stock exchange, half of the shares of which are distributed among Russian issuers. In this regard, in addition to the RTS table, the creation of a MICEX price chart is supposed to be the main instrument for trading management.

The graph reflecting the ratio of price and volume of sales for a dollar-to-ruble futures contract is denoted as Si. An inversely proportional relationship between the value of a futures and the RTS index was noted. If the Si futures fall, the RTS futures will grow by the given number of units. The analysis of Si futures indicators is carried out on the basis of the data of the chart of the international section of the MICEX. This relationship is justified by the dependence of the Russian raw material economy on the dollar exchange rate.

In addition to charts for conducting trades, a trader will need a glass of orders, which means a trade drive, and tables, with the help of which control over trading operations takes place. To build a chart, you will also need the characteristics of client accounts, the content of orders and a table showing the indicators of all conducted transactions.

Trading currency futures on the MICEX is identical to the exchange of banknotes in bank branches. If you expect a fall in the exchange rate, you should sell the currency, if its value increases smoothly or abruptly, you should have time to buy.

But the sale of foreign exchange reserves on stock exchange has a number of advantages:

The main characteristic of stock trading is the ability to reserve currency before the start of transactions on future period... If a trader is interested in the growth of the US dollar, then he should buy futures for this currency. With an increase in its value, the trader will receive compensation - a reward, since trades are carried out on the basis of speculation and exchange. The ruble index is in direct proportion to the level of Russian oil sales. When prices are "brought down" natural resource the reduction of the Russian currency rate by the corresponding value is likely.

Principles of plotting the dollar-ruble pair

One of the most popular futures in exchange trading is the RTS index. The indicator is distinguished by low fees and commissions transferred to brokers representing the interests of traders on FORTS.

Of greatest interest is trading in the dollar-ruble pair, as an indicator of the development of the Russian economy along with the cost of oil reserves, since in the international arena the Russian currency is not of interest to a wide range of traders.
If we compare the work of currency futures and stock indices in world trading, then we can determine that trading in currency equivalents takes place with the most flexible financial indicators. They are convenient for intraday trading.
When plotting a futures chart, it is important to determine the difference between the maximum and minimum values on the trading chart during the day session.

Historical indicators are taken into account to determine the limits. The greater the distance between them, the better the opportunities for movement within the 5-minute chart. At the same time, the risks remain at an acceptable level, and the level of profit can reach high rates. It is much easier to predict changes in the price of a currency than in stock indicators. The trajectory of their change is much clearer, especially for novice traders. Time characteristics are much more effective when trading in currencies, since the RTS index can remain unchanged for a long time, which will lead to no movement of funds. In the case of currency futures on the dollar-ruble, several falls and sharp increases in the sales rate may occur during this time, which guarantees a high reward.

The currency movement chart is provided online on the Moscow Exchange website. Indicators are updated with a delay of 10 minutes on all types of browsers. In order to track the progress of trading in real time, it is necessary to install a special CFD program that reflects the dynamics of the movement of futures. When working with this collateral, futures for dollar-ruble trading are broadcast without restrictions. The system also installed a demonstration of the difference between the underlying and derivative futures, shown while maintaining the positions of the asset dynamics. Thus, the first instrument for organizing sales on currency options is characterized.

Influence of the dollar-ruble chart on the oil sales rate

With a fall in oil prices, the value of the ruble goes down sharply.
When constructing a chart, the Russian oil sales rate, which determines the value of the local currency in world markets, has a significant influence. The price of oil is determined by the news. For example, on the eve of the collapse in the value of black gold occurred due to the news about the dispatch of a resource from Iran to the United States.

Fluctuating currencies when selling gold

Foreign exchange trading directly depends, in addition to fluctuations in oil prices, on the gold selling rate. A simple example - the subject of a contract is measured in grams and ounces of gold. Its cost is determined in American dollars for every ounce contained in the bar.

The minimum price change is taken at $ 0.1, with a 5% guarantee the value of the contract for the sale of gold.

At the time of the trades, the accepted dollar / ruble rate is 1 / 35.50. The deal is carried out at 835 points trades. Thus, open position will be 29,642 rubles, based on the calculation of 835 * 35.5. GO - 5% from 29642 in the amount of 1482 rubles.

If the price of gold, like oil, changes by several positions, presumably, the step becomes equal to 880. Thus, the level will rise by 45 points and will amount to 1,598 rubles, based on the calculation of 45 * 35.5 rubles. The specified value is acquired when the price of gold fluctuates.

Dependence of the currency movement schedule on the example of trading in Sberbank shares

For the stock exchange, the risk of a margin call is of great importance, that is, the achievement of a minimum value. This situation can be explained using a simple example.
When buying 100 shares of Sberbank, their value was set at 90 rubles. per share, that is, a total of 9,000 rubles. During trading, the price of Sberbank shares fell by 5.5%, reaching 85 rubles. Total losses were equal to 500 rubles.

What matters is the collateral (GO), set, for example, at 15% for transactions with Sberbank securities. When trading using this technology, its size will be 1350 rubles, obtained according to the formula 9000 * 0.15. Thus, the costs will be equal to 37% with a loss of 500 rubles.

When the value of the futures falls by more than 7%, a margin call is announced, since there is half the money left for subsequent trades. Selling a futures in such trading in Sberbank shares is forced by a broker.

To use a futures or CFD chart based on the indicators of concluded contracts in dollars and rubles, it is necessary to enter the name of the corresponding futures in the characteristics of trading on the market. The name of the tickers may differ from the usual one, however, the list of futures and CFDs with accepted trading indicators is always placed under the chart in a special table.

Currency trading is relatively young exchange trading, at least when compared with some other "goods". Even younger is the Forex market, the emergence of which is inextricably linked with the emergence of the worldwide Internet. The main difficulty of all traders has always been to predict the movement of the asset price, in the case of currency trading - the exchange rate. In forecasting, there is ...

Currency trading is a relatively young type of exchange trading, at least when compared with some other “commodities”. Even younger is the Forex market, the emergence of which is inextricably linked with the emergence of the worldwide Internet. The main difficulty of all traders has always been to predict the movement of the asset price, in the case of currency trading - the exchange rate.

There are two opposite approaches in forecasting - and. Each contains an infinite variety of ways to predict prices. We will talk about a method that is somewhere in between technical and fundamental analysis. This method is to forecast rates based on the analysis of futures.

What are futures?

Futures are trading instruments, the purchase of which gives the investor the right after a certain period of time to buy a volume of currency strictly defined by the contract at a strictly defined price. There are two types of futures - European and American. The former imply the delivery of currency strictly on the day of the expiration of the futures, the latter - on any day before that date. Obviously, American futures are the most common in the market.

It's not hard to imagine the importance of futures functions. They allow for a small commission to get the right to buy currency in the future at a fixed rate, which, in turn, allows you to insure possible risks those who work with futures. But all of the above applies to those economic entities that actually use the currency for their needs. However, futures are also a way to make money, just like trading on the spot currency market. The only difference is that in the futures market, players predict the price of a currency for a more distant future, and use futures contracts of currency pairs as instruments.

So, we came to the conclusion that there are two "parallel" realities: futures and spot markets. Their prices differ, the more - the more volatile a trading instrument is.

The price of a currency futures is the price at which the market expects to buy it at the moment of expiration (expiration) of the futures contract at the current time. As is clear from the definition, this is a kind of forecast given by the market itself. It is important to understand that this forecast is given in accordance with the current state of affairs, and at every moment in time it is being corrected. That is, if at the moment the price of a futures for a currency is higher than the spot price, this does not mean that it will be higher at the moment of expiration, however, this indicates that in the current state of affairs this is the most likely scenario.

Forecasting methods

The use of futures for forecasting the rate is precisely in the adjustment of trading signals to the market expectation. In other words, if the market confidently expects a price below the current level, it is more expedient to consider signals for a fall for trading, and vice versa, otherwise. This is the simplest way to use futures, and like any very simple way, it does not give unambiguous results.

A much more accurate and effective, albeit more complex, method is the method of analyzing the dynamics of changes in volumes. In addition to current price futures in the futures market, in contrast to the spot Forex market, there is a concept of volumes, that is, the number of futures contracts concluded at the moment. So, depending on the price of the asset, more or less contracts are concluded. So, the price of an asset, including a futures price, is a kind of compromise, an optimum that suits the market at the moment. However, the optimum and price level may differ, but such deviations are quickly corrected by the market. In other words, the market gravitates towards the optimum. So, the closer the price approaches this optimal level, the more futures contracts are purchased, the volumes grow. If, when the price of an asset moves in a certain direction, the volumes of deals are also growing - this direction is probably the current trend, and one should trade in it.

Also, the outrunning change in futures prices of later periods testifies to the correspondence of the current direction of price movement to the trend. That is, if, when the price of a monthly futures falls, the three-month one falls more strongly - the direction is probably in line with the general expectations of the market.

Information on the current state of affairs can be obtained from a huge number of information sites on the Internet. There are also offices that offer information on futures prices in real time, that is, without a 10-15 minute lag.

In addition to direct analysis of futures prices on the market, there is also an analysis focused primarily on the volume of transactions. This analysis uses the reports of the American Commission for Commodity Futures Trading as a base, and contains the volumes of transactions by categories of subjects who concluded them. We will not go into a detailed description of such reports, this is a topic for a separate, long conversation, however, it is worth noting that the analysis of COT reports (as such reports are called) has a number of indisputable advantages and is one of the most promising market analysis tools.

Using futures in trading requires a lot of experience and knowledge, moreover, not only in the field of trading on foreign exchange market, but also in the field of economics and finance. Only an understanding of the entire mechanism of the futures market allows you to make a correct forecast based on this instrument, as well as, most importantly, to avoid the misconceptions that beginners often face.

At first glance, this comparison is not entirely clear, but everything will become clear if we decompose the decision-making process into two components: the actual analysis of the situation and the choice are applied. For successful trading on the stock exchange, the ability to choose the right time to enter and exit the market is of enormous importance, especially in futures transactions, where the leverage is so high. After all, you can correctly guess the trend, but still lose money. A relatively small amount of collateral (usually less than 10%) leads to the fact that even minor price fluctuations in an undesirable direction for you can oust you from the market, and as a result, lead to a partial or complete loss of collateral. For comparison, when playing on the stock exchange, a trader who feels that the market is going against him can take a wait and see attitude in the hope that sooner or later there will be a holiday on his street. The trader holds his shares, that is, he turns from a trader into an investor.

In the commodity market, alas, this is impossible. For futures transactions, the buy and hold principle is absolutely unacceptable. Therefore, if we return to our two components, in the analysis phase. "You can use both a technical and a fundamental approach to get the correct forecast. As for the timing, determining the points of entry and exit from the market, a purely technical approach is required here. Thus, considering the steps that a trader should take before taking on market obligations, we can once again make sure that at a certain stage it is the technical approach that is absolutely irreplaceable, even if fundamental analysis was applied in the early stages.

FLEXIBILITY AND ADAPTABILITY OF TECHNICAL ANALYSIS

One of the strengths of technical analysis is undoubtedly that. that it can be used for almost any trading medium and in any time frame. There is no such area in operations on the stock and commodity exchange, where the methods of technical analysis are not applied.

If we are talking about commodity markets, then a technical analyst, thanks to his charts, can monitor the situation in any number of markets, which cannot be said about fundamentalists. The latter, as a rule, use so many different data for their forecasts that they are simply forced to specialize in one market or group of markets: for example, grain, metals, etc. The advantages of a broad specialization are obvious.

First of all, any market has periods of bursting activity and periods of lethargy, periods of pronounced price trends and periods of uncertainty. A technical analyst can freely concentrate all his attention and forces on those markets where price trends are clearly traced, and all the rest can be neglected for now. In other words, he makes the most of the advantages of the rotational nature of the market, and in practice this is expressed in the rotation of attention and, of course, funds. At different periods of time, certain markets suddenly begin to "seethe", prices for them form clear trends, and then activity fades, the market becomes sluggish, price dynamics - uncertain. But in some other market at this moment, a burst of activity suddenly begins. And a technical analyst in such a situation has freedom of choice, which cannot be said about fundamentalists, whose narrow specialization in a certain market or group of markets simply deprives them of this opportunity to maneuver. Even if the fundamental analyst decides to switch to something else, this maneuver will require much more time and effort from him.

Another advantage of technical analysts is the "broad view". Indeed, by following all the markets at once, they have a clear picture of what is generally going on in the commodity markets. This allows them to avoid the kind of "blinkeredness" that can result from specialization in any one group of markets. Moreover, most futures markets closely related to each other, they are influenced by the same economic factors. Consequently, price dynamics in one market or group of markets may be the key to unraveling where some completely different market or group of markets will go in the future.

TECHNICAL ANALYSIS FOR VARIOUS MEDIA OF TRADE

The principles of graphical analysis are applicable to stock, and on commodity markets. As a matter of fact, initially technical analysis was used precisely on the stock exchange, and came to commodity a little later. But since they appeared futures deals on stock indices(stock index futures), the border between the stock and commodity markets is becoming more and more elusive. Technical principles also apply to analysis international stock markets(International Stock Markets) (see Fig. 1.2).

Rice. 1.2 International Stock Markets

Over the past ten years have become extremely popular financial futures, including on interest rates and world currencies. They have proven to be excellent objects for graphical analysis.

The principles of technical analysis can be successfully applied in operations with options and spreads. Since forecasting prices is one of the factors that must be taken into account by the hedger, the use of technical principles when hedging has undeniable advantages.

TECHNICAL ANALYSIS FOR VARIOUS TIMES

One more strong point technical analysis is the possibility of its application at any time interval. And it does not matter at all whether you are playing on fluctuations within one trading day, when every tick is important, or analyzing the medium-term trend, in any case you use the same principles. It is sometimes argued that technical analysis is only effective for short-term forecasting. In fact, this is not the case. Some people mistakenly believe that fundamental analysis is more suitable for long-term forecasts, and the lot of technical factors is only short-term analysis in order to determine the moments of entry and exit from the market. But, as practice shows, the use of weekly and monthly charts covering market dynamics over several years is extremely fruitful for long-term forecasting.

It is important to fully understand the basic principles of technical analysis in order to feel the flexibility and freedom of maneuver that they provide to the analyst, allowing him to apply them with equal success to the analysis of any trading medium and at any period of time.

ECONOMIC FORECAST

At times, many of us tend to view technical analysis from a very specific angle: as something used to predict prices and trade in the stock and futures markets. But after all, with the same success the principles of technical analysis can find themselves and wider application, for example, in the field of economic forecasts. Until now, this area of technical analysis was not very popular.

Technical analysis has proven to be effective in predicting development financial markets... But do these forecasts have any value in a macroeconomic context? A few years ago, The Wall Street Journal published an article titled "Bond Sharps Are The Best Leading Indicators of Economic Bust and Bust." The main idea of the article was that bond prices capture the coming changes and the economy with amazing clarity. The article contains the following statement:

"The bond market as a leading indicator outperforms not only the stock market, but any well-known leading indicators used by the US government."

What's important here? First of all, we note the mention of stock market... The Standard & Poor's 500 Index is one of the twelve most common leading economic indicators that the US Department of Commerce focuses on. The author of the article cites data from the National Bureau of Economic Research in Cambridge, Massachusetts, according to which the stock market is the best of the twelve leading indicators. The fact is that there are futures contracts for both bonds and the Standard & Poor's 500 index. Since both contracts lend themselves well to technical analysis, it means, in the end, we are doing nothing else. as economic forecasting, knowing it or not. The most striking example of this is the powerful upward trend in the bond and equity markets, which in the summer of 1982 heralded the end of the deepest and longest economic downturn since World War II. This signal remained at that time almost unnoticed by most economists.

The New York Coffee, Sugar and Cocoa Exchange (CSCE) has proposed futures contracts for four economic indices, including the Housing Starts and the Consume! Price Index for Wage Earners). A new Commodity Research Bureau Futures Price Index futures contract is expected to be introduced. This index has long been used as a barometer to record inflation "pressures". But, in fact, it can be used much more widely. An article in the Commodity Year Book (1984; Commodity Research Bureau, Inc.) explores the relationship between the CRB index and all other economic indicators by analyzing four business cycles dating back to 1970 (see Fig. . 1.3).

Rice. 1.3 The chart shows a clear relationship between the SRV futures index (solid line) and the industrial production index (dashed line).

For example, it indicates that the values of the CRB index are closely related to the dynamics of the index of industrial production, in the sense that the index of futures prices, as a rule, anticipates the change in the values of the second index. The article says: "The apparent relationship between the CRB and industrial output indicates the effectiveness of the CRB as a broad economic indicator." (Stephen Cox, "The CRB Futures Price Index is a basket of 27 commodities that may soon become the subject of futures contracts", p. 4). On my own behalf, I can only add that we have been drawing graphs and analyzing the dynamics of the CRB index for several years now, and always with constant success.

Thus, it becomes abundantly clear that the value of technical analysis as a predictive tool goes far beyond determining which direction the prices of gold or, say, soybeans are moving. However, it should also be noted that the merits of the technical approach to the analysis of macroeconomic trends have not yet been fully explored. The Consumer Price Index (CPI-W) futures contract, introduced on the Coffee, Sugar and Cocoa Exchange (CSCE), was the first such contract on economic indices used to analyze the stock market. It is difficult to answer unequivocally here. Basically, the principles are the same, but there are a number of significant differences. The principles of technical analysis were initially applied in the stock market and only later came to the commodity market. Many basic tools - for example, bar charts, point-to-digital charts, price patterns, trading volume, trend lines, moving averages, oscillators - are used in both. Therefore, it is not so important where you first encountered these concepts: in the stock market or in the commodity. It will not be difficult to rebuild. However, there are a number of common differences, which are related more to the very nature of the stock and commodity futures markets than to the tools that the analyst uses.

Pricing structure

The price structure in the commodity futures market is much more complex than in the stock market. Each product is quoted in strictly defined units of account. For example, in grain markets it is cents per bushel, in livestock markets it is cents per pound, gold and silver are in dollars per ounce, and interest rates are in basis points. A trader must study the details of contracts in each market: on which exchange the operations are carried out, how a particular product is quoted, what are the maximum and minimum price changes and what are they equal in monetary terms.

Limited contract duration

Unlike stocks, futures contracts have a limited duration. For example, the March 1985 long-term Treasury bond futures contract expires in March 1985. Usually a futures contract "lives" for about one and a half years. Thus, there are several contracts on the market at the same time for the same product, but with different execution months. A trader should know which contracts he should trade and which should not (this will be discussed later). The limited duration of futures will create some problems for long-term price forecasting. It becomes necessary to create new charts every time when trading on old contracts is stopped. Expired contracts charts are no longer needed. They are being replaced by charts of new contracts with their own technical indicators. This constant rotation makes it very difficult for our kind of "library" of current charts to function. Using a computer also doesn't make things easier, as keeping databases updated as old contracts expire takes additional time and money.

Lower collateral

This point is the most significant difference between stocks and commodity futures. Any futures contracts require the posting of collateral. Usually the amount of the collateral does not exceed 10% of the contract value. The result is a "leverage" effect, due to which relatively small price fluctuations in one direction or another can have a very noticeable effect on the state of the account that the trader controls. Therefore, on futures, you can quickly make or lose large amounts of money. Due to the fact that the amount of the margin that the trader exposes does not exceed 10% of the contract value, a 10% price change in one direction or another will lead to the trader either gaining a 100% profit or losing his money. Everything can happen very quickly: right after breakfast you open a position, and even before lunch you will know the result. Due to the effect of leverage, which makes even small price fluctuations of great importance, the futures market looks more volatile and volatile than it really is. After all, when someone tells you that he "flew" in futures, do not forget that he flew in by no more than 10%.

From the point of view of technical analysis, the high leverage makes it necessary to pay special attention to the correct timing of actions. This is much more important for the futures market than for the stock market. The ability to accurately determine the moment of entry and exit is necessary for success in the futures market. However, this is much more difficult than doing market analysis. Therefore, technical methods are absolutely indispensable for successful futures trading.

The time interval is much shorter

Due to the high leverage and the need to closely monitor their market positions, a trader in the commodity futures market works with fairly short periods of time. Stock market analytics are interested in the long-term perspective of market development, while the futures market trader does not look that far. If the former can talk about where the market will move in three months or in six months, the latter is more concerned about where the prices will be next week, tomorrow or even today, in the afternoon. Such analysis requires the finest melee tools that technical stock market analysts may not even be aware of. Let's take moving averages as an example. In the stock market, the most commonly used moving average for a period of 30 weeks, or 200 days. In the commodity market, this period usually does not exceed 40 days. The following combination of moving averages is very popular for futures: 4, 9 and 18 days.

High dependency on timing

For futures trading, knowing when to enter and exit the market is paramount. If you managed to correctly determine the direction of the market, this is only half the battle, because a mistake when entering the market on one day, and sometimes in several minutes, can lead to a loss. No doubt, it's a shame if you didn't guess the direction of the market. However, losing, even despite the correct forecast, is doubly insulting. And this often happens in the futures market. There is no doubt that timing is the prerogative of technical analysis, since the fundamental indicators are quite stable and do not change daily.

Limited use of market averages in analysis commodity futures

When analyzing the stock market, the movement of market averages such as the Dow Jones and the Standard & Poor's 500 is given tremendous importance; in fact, it is the starting point for technical analysis of the stock market. In the commodity market, this is not the case. "There are a number of indices that determine the general direction of price movement in a commodity market, for example, the CRB futures price index. The dynamics of these indices is carefully studied and taken into account when making forecasts. However, in terms of their importance for market analysis, commodity indices are not comparable to stock indices.

Limited use of general market technical indicators in commodity markets

General market technical indicators, such as the new highs-new lows index, the advance-decline line, the short-interest ratio, have a colossal share in forecasting in the stock market. market, but in the commodity market they practically did not find application. This is not to say that these indicators cannot be used at all in the futures markets. As the number of futures markets grows steadily, professionals may someday need broader indicators of market movement, but so far they are hardly used.

Special technical tools

Most of the technical tools were originally created specifically for the stock market. Therefore, in the commodity market where they came later, they are sometimes used in a slightly different way. For example, price patterns on commodity futures charts are not always formed as completely as on stock charts, moving averages are much shorter in length, traditional point-to-digital charts are rarely used. Due to the fact that information about price changes during the day is much more difficult to obtain, only "traders on the floor" use intraday pips-digital charts. We will touch upon these and many other differences in the subsequent chapters of the book.

Finally, there is another fundamental difference between the stock and futures markets. Technical analysis in the stock market relies much more heavily on the use of psychological indicators(sentiment indicators) and analysis cash flow(How of funds analysis). Psychological indicators reflect the behavior of various groups of market participants: single traders, mutual funds, professionals working directly on the trading floor of the exchange. Great importance is attached to those psychological indicators that show the general "mood" of the market: bullish or bearish. The analyst here proceeds from the principle that the majority or the crowd is always wrong. Cash flow analysis deals with the cash positions of various groups, such as mutual funds or large institutional investors. IN this case the analyst argues as follows: the larger the cash position, the more money can be used to buy shares. While these forms of stock market analysis are not paramount, technical analysts often rely on them more than traditional market analysis tools.

Technical analysis of the futures markets, from my point of view, is the purest form of price analysis. Of course, it allows the use of the “contrary opinion theory” method, but the main emphasis is still placed on the analysis of trends and on the use of traditional technical indicators.

Translation from English: Novitskaya O., Sidorov V.

Scientific editor candidate economic sciences Samotaev I.

John J. Murphy

Technical analysis of futures markets: theory and practice... - M .: Sokol, 1996.

This book discusses in detail and in an accessible form theoretical basis technical analysis and methods of its practical application. The author, a leading expert in technical analysis with a worldwide reputation, convincingly proves the need to use technical methods to predict price movements and successful financial transactions.

The book is a basic manual for the technical analysis of not only futures, but also stocks and other financial instruments. It is rightfully considered the "bible of technical analysis" ".

The book is designed for both novice players and experienced specialists in the exchange and over-the-counter markets.

"Technical Analysis of Futures Markets" "has been translated into eleven languages, published in many countries and for the first time in Russian.

Foreword

Why Another Book on Technical Analysis of Commodity Futures Markets? To answer this question, I will have to go back a few years, to the time when a course in this subject was introduced at the New York Institute of Finance.

In the spring of 1981, the management of the institute approached me with a request to organize a course on technical analysis of futures markets for students of this educational institution. By that time, I had over a decade of practical experience as a technical analyst behind me, and I was repeatedly invited to lecture on this subject in various classrooms. Nevertheless, the task of constructing a fifteen-week course turned out to be quite difficult, contrary to my expectations. At first I was sure that I would hardly be able to stretch the content of the course for such a long time. However, starting to select the material that, in my opinion, deserves inclusion in the program, I came to the conclusion that fifteen weeks is hardly enough to cover even in general terms such a complex and voluminous topic.

Technical analysis is more than a simple set of highly specialized knowledge and techniques. It is a combination of several different approaches and areas of specialization, which, when combined, form a unified technical theory. The study of technical analysis must necessarily begin with familiarity with more than ten different approaches, while it is necessary to clearly understand their relationship within the framework of one coherent theory.

Having identified the range of issues that should be included in the course program, I started looking for a book that could be used as a textbook. However, having studied all the available literature, I came to the conclusion that such a book does not exist. Of course, of the books published at that time on this topic, there were many good and worthy of attention, but none of them was suitable for my purposes. Those books that covered the basics of technical analysis in sufficient detail were intended for the stock market, and I did not want to take a book on securities analysis as the basis of a "futures" course.

As for the books on the technical analysis of the futures markets, they could be divided into several categories. Almost all of them were designed for an audience already familiar with the basics of graph analysis. Their authors presented their new developments and the results of original research to the reader. Such literature could hardly be useful to those who are just beginning to get acquainted with the subject. The books of another group were devoted to one section of technical theory, for example, the analysis of bar or dot-and-digital charts, the theory of Elliott waves or the analysis of cycles and did not suit me due to their narrow specialization. The books of the third group dealt with the problems of using computer technologies and developing new systems and indicators. Despite the obvious merits of all these books, none of them was suitable for the role of textbooks for a course in technical analysis, as it was either very difficult for a beginner, or too narrowly specialized.

In the end, I suddenly realized that the book I was looking for for my course, a solid textbook that would cover in a logical, consistent manner all the most important areas of technical analysis in relation to the futures markets and which, at the same time, was would be accessible to an unprepared reader, it simply does not exist. It became clear to me that there was a gap in the literature on this topic. Since, like any technical analyst, I know that the gaps have to be filled, I concluded that if I needed such a book, I would have to write it myself.

The book "Technical Analysis of Futures Markets" was not intended to be an exhaustive, comprehensive book on technical analysis. There is no such book and never will be. Technical analysis is very wide and multifaceted, there are so many subtleties and different currents in it that any attempt to write an "exhaustive" book would not only be presumptuous, but would initially be doomed to failure. There are separate works on practically every topic covered in this book.

At the same time, this book is not a simple textbook for beginners either. Its first chapters are devoted to a detailed study of the foundations of technical theory. This is due, in part, to the fact that, in my deep conviction, the effectiveness of technical analysis is determined primarily by the ability to use these fundamentals correctly. Most of the complex systems and indicators used today are nothing more than a continuation and development of the simplest concepts and principles. Having mastered the basics of chart analysis, the reader will be able to move on to considering more complex methods and tools outlined in the following chapters. The book is structured in such a way as not to cause difficulties in perception for a relatively unprepared reader. At the same time, most of the material will be useful to those who already have some experience in this area and have worked in the futures market for more than one year. Professional technical analysts will be able to use this book to review the concepts and principles of technical theory that they already know.

The last statement is especially important, because, as you know, repetition is the mother of learning. One of the greatest traders of his time and the founder of one of the branches of technical analysis, W. D. Gann, once said: “I have studied and improved my methods every year for the last forty years. Nevertheless, I am still learning and hope to make more significant opening in the future. " ("Profitable operations in the commodity markets", 1976, p. 2).

The importance of constantly expanding knowledge and repeating previously studied material can hardly be overestimated. Being engaged in teaching technical analysis, by force of necessity, I constantly returned to the literature I had already read several years ago. As a practicing analyst, I only benefited from this: each new reading opened for me some new subtleties and details that had previously remained unnoticed. I am very amused when some novice technical analyst, after half a year or a year of practical activity, tells me that he has already mastered the basics and would like to do something "more serious". Maybe I'm just jealous of people like that. Despite over fifteen years of experience, I am still trying to master these very basics.

IN Chapter 1 the philosophical basis of technical analysis of futures markets, as well as its basic postulates are revealed. In my opinion, many misconceptions regarding technical analysis are caused primarily by the lack of a clear understanding of what technical theory is and ignorance of the philosophical roots that underlie it. Further, the technical and fundamental methods of forecasting market dynamics are compared and some advantages of the technical approach are indicated. Attention is also paid to some of the similarities and differences in the application of technical analysis in the stock and futures markets, since questions on this topic arise quite often. The views of two groups of opponents of technical analysis are briefly considered: adherents of the theory of "random events" and "self-fulfilling prophecy".

Chapter 2 is devoted to the famous Dow theory, which laid the foundation for the development of most areas of technical theory. Many technical analysts in the futures markets are unaware of how much of what they use in their work today is based on the principles laid out by Charles Doe at the end of the last century.

IN Chapter 3 describes how the daily bar chart, the most common type of charts, is built, and introduces the concepts of trade volume and open interest. The features of constructing weekly and monthly graphs, which are a necessary addition to the daily one, are also considered.

IN chapter 4, dedicated to the trend and its main characteristics, reveals the basic concepts, or "building blocks", of graphical analysis, such as support and resistance, trend lines and price channels, percentages of the length of the correction, gaps and days of a key change.

IN chapters 5 and 6c using the concepts already known to the reader from the previous chapter, price models are studied. Major trend reversal patterns such as head and shoulders, double top and bottom are discussed in Chapter Five. Continuation patterns, including flags, pennants, and triangles, are in the sixth. The text is accompanied by a large number of illustrations. Much attention is paid to how price patterns are measured in order to determine price targets, as well as the role of trading volume in the formation and completion of patterns. In chapter/ the concepts of volume and open interest are covered in more detail.

It shows how changes in these indicators can confirm price movements or serve as a warning about a possible trend reversal. Some indicators based on trading volume are considered, such as on-balance volume (OBV), volume accumulation (VA), etc. The importance of using the indicators of open interest contained in the "Traders' Commitment Report" is also emphasized.

Chapter 8 is devoted to an important area of graphical analysis - the use of weekly and monthly charts of long-term development, which are often not given enough attention. Long-term charts give a clearer picture of the general trend of the market development than daily charts. In addition, the need to track indicators of generalized indices of commodity markets, such as the index of futures prices of the Bureau of Commodity Market Research (FCC) and indices of various groups of markets, is substantiated.

IN Chapter 9 the moving average is considered, one of the most famous and widespread technical tools, the basis of most computerized technical systems that follow the trend.

This chapter also introduces another trend-following technique - the weekly price channel, or the "four-week rule".

IN Chapter 10 Learn about the different types of oscillators and how they identify overbought and oversold market conditions and divergences. Attention is also paid to another way of determining critical market conditions - the “reverse” method.

Chapter 11 introduces the reader to the world of point-to-digital charts. Despite its lesser popularity, this type of charts allows for more accurate analysis of price movements and is a valuable addition to bar charts.

IN Chapter 12 shows how to preserve some of the advantages of the point-to-digital method of presenting data in the absence of information about intraday prices. The method of three-cell reversal and ways of optimizing point-to-digital graphs are considered. It seems that due to the widespread use of computers and the emergence of more and more sophisticated systems for disseminating price information, digital charts are gradually regaining their former popularity among analysts of the futures markets.

IN Chapter 13 covers the theory of Elliott waves and the Fibonacci number sequence. This theory, originally applied to the analysis of stock indices, in last years began to attract increased attention of specialists working in the futures markets. The Elliott Principles provide a unique approach to studying market dynamics and, when applied correctly, enable the analyst to predict future trend changes with greater confidence and reliability.

Chapter 14 introduces the reader to the theory of cycles, thereby adding a new - temporal - aspect to the process of market forecasting. It also discusses the annual seasonal price movement models. In addition to a general overview of the basic principles of cyclical analysis, the problem of improving the efficiency of other technical tools, such as average

moving and oscillators, by synchronizing them with the dominant market cycles.

Chapter 15 pays tribute to the increased role of computers in the technical analysis of the market and the stock exchange game in recent years. This chapter outlines some of the advantages and disadvantages of using mechanical computer trading systems and some features of the computer program for technical analysis, created by Komputrek, are considered. Nevertheless, it is constantly emphasized that the computer is just a tool that cannot replace the analysis itself, competent and balanced. If the user does not know the methods described in chapters 1 to 14, do not rely on the help of a computer. A computer can make a good technical analyst even better, and even harm a bad one.

IN Chapter 16 another aspect of successful futures trading, which, unfortunately, is very often neglected, is discussed in detail - money management. It reveals the basic principles of effective money management and explains why they are so necessary for survival in the futures markets. Many traders believe that the ability to properly manage their funds is the most important aspect of futures trading. This chapter shows the relationship between the three elements of a trading program: forecasting, tactics, and money management. Forecasting helps a trader to decide which side he should enter the market - long or short. Trading tactics consists in choosing a specific moment to enter and exit the market. Fund management principles allow you to determine how much money should be invested in a trade. In addition, various types of exchange orders are discussed and the question of whether to use protective stop orders as part of a trading strategy.

In chapter "Systematization of analytical methods" all the variety of technical methods and tools discussed in the previous chapters is presented in the form of a single coherent theory. The need for knowledge of all different areas of technical analysis and the ability to combine them in your work is emphasized. Many technical analysts specialize in one particular area of analysis, believing that this is the key to success. I am firmly convinced that no single area of technical analysis can give answers to all questions, each of them contains only a part of the answer to the question of interest to the analyst. The more methods and tools a trader uses, the more likely he will be able to make the right decision. The list of technical procedures in the questions presented in the section will help him in this.

Despite the fact that this book is intended primarily for those who are engaged or are planning to trade directly in futures contracts, the principles of technical analysis set forth in it can be equally well applied to trading spreads and options. Some of the features of the use of the technical approach in these two most important areas of stock trading are briefly discussed in Appendices 1 and 2. Finally, no book on technical analysis can be considered complete without mentioning the legendary W. D. Gann. Without being able to elaborate on the provisions of his teachings within the framework of this book, we will describe several of his most simple and, in the opinion of some experts, effective tools in Appendix 3.

Hopefully, this book will really fill the gap discovered by the author and help the reader to better understand what technical analysis is and appreciate its value. Of course, technical analysis is not for everyone. Moreover, its effectiveness would most likely be significantly reduced if everyone suddenly began to use it. It is not the intention of the author to impose a technical approach on anyone. This book is an attempt by a technical analyst to share his views on a sometimes seemingly complicated and confusing subject with those who really seek to expand their knowledge about it.

Technical analysis is not at all a "guessing on the coffee grounds", such comparisons can only be heard from people who are ignorant. But at the same time, it should not be considered a magic wand that guarantees instant enrichment. Technical analysis is simply one of the approaches to predicting market movement, based on the study of the past, human psychology and the theory of probability. Of course, he is not perfect. Nevertheless, in most cases, forecasts based on it are distinguished by a fairly high degree of accuracy. Technical analysis has stood the test of time in the real world of stock trading, and deserves the attention of those seriously studying market behavior.

The main theme of this book is simplicity. I have always been against the over-complication of technical analysis methods. Having tried most of the existing technical tools, from the simplest to the most sophisticated, over the years, I have come to the conclusion that the simpler techniques are often the most effective. So my advice to you is: strive for simplicity.

John J. Murphy

Chapter 1.
Philosophy of technical analysis

INTRODUCTION

Before embarking on the study of the methods and tools used for the technical analysis of commodity futures markets, it is necessary first of all to determine what, in fact, is technical analysis. In addition, one should dwell on its philosophical basis, draw a clear distinction between technical and fundamental analysis and, finally, mention the criticisms that technical analysis is often subjected to.

So, let's get down to the definition. Technical analysis is the study of market dynamics, most often through charts, in order to predict the future direction of price movement. The term "market dynamics" includes three main sources of information at the disposal of a technical analyst, namely: price, volume and open interest. In our opinion, the term "price dynamics", which is often used, is too narrow, as most technical analysts in the commodity futures markets use volume and open interest for their forecasts, not just prices. But despite these differences, it should be borne in mind that in the context of this book, the terms "market dynamics" and "price dynamics" will be used interchangeably.

PHILOSOPHICAL BASIS OF TECHNICAL ANALYSIS

So, we will formulate three postulates on which, like on three pillars, technical analysis stands:

1. The market takes into account everything.

2. Price movement is subject to trends.

3. History repeats itself.

The market takes into account everything

This statement, in fact, is the cornerstone of all technical analysis. Until the reader comprehends the whole essence and all the meaning of this postulate, there is no point in moving on. A technical analyst believes that the reasons that can somehow affect the market value of a futures commodity contract (and these reasons can be of the most diverse properties: economic, political, psychological - any), will inevitably find their own reflection in the price of this item.

It follows from this that all that is required of you is a thorough study of the price movement. It may seem like it sounds overly biased, but if you think about the true meaning of these words, you will understand that it is impossible to refute them.

So, in other words, any changes in the dynamics of supply and demand are reflected in the movement of prices. If demand exceeds supply, prices rise. If supply exceeds demand, prices go down. This, in fact, underlies any economic forecasting. A technical analyst approaches the problem from the other end and argues as follows: if, for whatever reason, prices in the market go up, it means that demand exceeds supply. Consequently, in terms of macroeconomic indicators, the market is beneficial for the bulls. If prices fall, the market is beneficial for the bears. If suddenly you are confused by the word "macroeconomics", which suddenly appeared in our conversation about technical analysis, then this is completely in vain. There is absolutely nothing to be surprised at. After all, even indirectly, but a technical analyst somehow merges with fundamental analysis. Many experts in technical analysis will agree that it is the deep mechanisms of supply and demand, the economic nature of a particular commodity market, that determine the dynamics of rising or falling prices. By themselves, charts do not have the slightest effect on the market. They only reflect a psychological, if you like, an upward or downward trend that is currently taking over the market.

As a rule, charting analysts prefer not to delve into the underlying causes of the rise or fall in prices. Very often in the early stages, when a tendency to change prices has just begun, or, on the contrary, at some turning points, the reasons for such changes may not be known to anyone. It may seem that the technical approach unnecessarily simplifies and coarsens the task, but the logic behind the first initial postulate - "the market takes everything into account" - becomes more obvious the more experience a technical analyst acquires in real work in the market.

It follows from this that everything that in any way affects the market price will certainly be reflected in this very price. Therefore, it is only necessary to closely monitor and study price dynamics. By analyzing price charts and many additional indicators, a technical analyst makes sure that the market itself indicates to him the most likely direction of its development. We don't need to try to outwit or outsmart the market. All methods and techniques about which there will be a speech in this book serve only to assist the specialist in the process of studying market dynamics. A technical analyst knows that for some reason the market is going up or down. But it is unlikely that the knowledge of what these reasons are necessary for his predictions.

Price movement is subject to trends

The concept of a trend or trend (trend) is one of the fundamental concepts in technical analysis. It is necessary to learn that, in fact, everything that happens on the market is subject to one or another trend. The main purpose of charting the dynamics of prices in the futures markets is to identify these trends in the early stages of their development and trade in accordance with their direction. Most technical analysis methods are trend-following in nature, that is, their function is to help the analyst recognize a trend and follow it throughout its entire period of existence (see Fig. 1.1) ...

From the position that the price movement is subordinate to trends, two consequences follow: The first consequence: the current tendency, in all likelihood, will develop further, and not turn into its own opposite. This consequence is nothing more than a paraphrase of Newton's first law of motion. Consequence two: the current trend will develop until it starts moving in the opposite direction. This, in essence, is another formulation of the corollary of the first. Whatever verbal parabola this position may seem to us, we should firmly remember that all methods of following trends are based on the fact that trading in the direction of an existing trend should be conducted until the trend shows signs of a reversal.

Rice. 1.1 An example of an uptrend. Technical analysis is based on the assumption that price movements are subject to trends and that these trends are sustainable.

History repeats itself

Technical analysis and research into market dynamics are closely related to the study of human psychology. For example, chart price patterns that have been isolated and categorized over the past hundred years reflect important features psychological state of the market. First of all, they indicate which of the structures - bullish or bearish - dominate the market at the moment. And if in the past these models worked, there is every reason to assume that they will work in the future, because they are based on human psychology, which does not change over the years. We can formulate our last postulate - "history repeats itself" - in slightly different words: the key to understanding the future lies in the study of the past. Or it can be quite different: the future is just a repetition of the past.

COMPARISON OF TECHNICAL AND FUNDAMENTAL FORECASTING

If technical analysis is mainly concerned with the study of market dynamics, then the subject of fundamental analysis research is the economic forces of supply and demand that cause price fluctuations, that is, make them go up, down or remain at the existing level. The fundamental approach analyzes all the factors that in one way or another affect the price of a product. This is done in order to determine the intrinsic or actual value of the goods. According to the results of fundamental analysis, it is this actual value that reflects how much a particular product actually costs. If the actual value is lower than the market price of the goods, then the goods must be sold, since they give more for it than it actually costs. If the actual value is higher than the market price of the product, then you need to buy, because it is cheaper than it actually costs. In this case, they proceed exclusively from the laws of supply and demand.

Both of these approaches to predicting market dynamics try to solve the same problem, namely:

determine in which direction prices will move. But they approach this problem from different angles. If the fundamental analyst is trying to understand the reason for the market movement, the technical analyst is only interested in the fact of this movement. All he needs to know is what the market movement or dynamics is taking place, and what exactly caused it is not so important. The fundamental analyst will try to figure out why this happened.

Many specialists working with futures traditionally consider themselves to be either technical or fundamental analysts. In fact, the border is very blurred here. Many fundamental analysts have at least some basic chart analysis skills. At the same time, there is no technical analyst who, at least in general terms, did not understand the main provisions of fundamental analysis. (Although among the latter there are so-called "purists" who will strive at all costs to prevent a "fundamental infection" from entering their techno-analytical holy of holies). The fact is that very often these two methods of analysis really come into conflict with each other. Usually, at the very beginning of some important shifts, market behavior does not fit into the framework of fundamental analysis and cannot be explained on the basis of only economic factors.

It is at these moments, moments for the general trend that are most critical, that the two types of analysis - technical and fundamental - diverge most of all. Later, at some stage, they will coincide in phase, but, as a rule, it is too late for adequate trader's actions.

One of the explanations for this apparent contradiction is the following: the market price is ahead of all known fundamental data. In other words, the market price serves as a leading indicator of fundamental data or common sense considerations. While the market has already taken into account all known economic factors, prices are beginning to react to some completely new, not yet known factors. The most significant periods of rising and falling prices in history began in an environment when nothing or almost nothing, in terms of fundamental indicators, did not foreshadow any changes. When these changes became clear to fundamental analysts, the new trend was already developing in full force.

Over time, a technical analyst gains confidence in his ability to read and analyze charts. He gradually gets used to the situation when the market dynamics do not coincide with the notorious "common sense". He begins to enjoy being in the minority. A technical analyst knows for sure that sooner or later the reasons for the market dynamics will become known to everyone. But it will be later. And now you can't waste time waiting for this additional confirmation of your own innocence.

Even with this cursory acquaintance with the basics of technical analysis, one can understand what is its advantage over fundamental. If you need to choose one of two approaches, then, logically, this, of course, should be technical analysis. First, by definition, it includes the data used by fundamental analysis, because if they are reflected in the market price, then they no longer need to be analyzed separately. So graph analysis is essentially becoming a simplified form of fundamental analysis. Incidentally, the same cannot be said about the latter. Fundamental analysis is not concerned with the study of price dynamics. You can successfully work in the commodity futures market using only technical analysis. But it’s very unlikely that you’ll succeed in any way if you rely only on data from fundamental analysis.

ANALYSIS TYPE AND TIME SELECTION

lead to partial or complete loss of collateral. For comparison, when playing on the stock exchange, a trader who feels that the market is going against him can take a wait-and-see attitude in the hope that sooner or later there will be a holiday on his street. The trader holds his shares, that is, he turns from a trader into an investor.

In the commodity market, alas, this is impossible. For futures transactions, the buy and hold principle is absolutely unacceptable. Therefore, if we return to our two components, in the analysis phase, you can use both a technical and a fundamental approach to get the correct forecast. As for the timing, determining the points of entry into and exit from the market, a purely technical approach is required here. Thus, having considered the steps that a trader should take before taking on market obligations, we can once again make sure that at a certain stage it is the technical approach that is absolutely irreplaceable, even if fundamental analysis was applied in the early stages. ...

FLEXIBILITY AND ADAPTABILITY OF TECHNICAL ANALYSIS

One of the strengths of technical analysis is undoubtedly the fact that it can be used for almost any trading medium and in any time frame. There is no such area in operations on the stock and commodity exchange, where the methods of technical analysis are not applied.

If we are talking about commodity markets, then a technical analyst, thanks to his charts, can monitor the situation in any number of markets, which cannot be said about fundamentalists. The latter, as a rule, use so many different data for their forecasts that they simply have to specialize in one particular market or group of markets: for example, grain, metals, etc. The advantages of a broad specialization are obvious.

First of all, any market has periods of bursting activity and periods of lethargy, periods of pronounced price trends and periods of uncertainty. A technical analyst can freely concentrate all his attention and strength on those markets where price trends are clearly traced, and all the rest can be neglected for now. In other words, he makes the most of the advantages of the rotational nature of the market, and in practice this is expressed in the rotation of attention and, of course, funds. At different periods of time, certain markets suddenly begin to "seethe", prices for them form clear trends, and then activity fades, the market becomes sluggish, price dynamics - uncertain. But in some other market at this moment, a burst of activity suddenly begins. And a technical analyst in such a situation has freedom of choice, which cannot be said about fundamentalists, whose narrow specialization in a certain market or group of markets simply deprives them of this opportunity for maneuver. Even if the fundamental analyst decides to switch to something else, this maneuver will require much more time and effort from him.

Another advantage of technical analysts is the "broad view". Indeed, by following all the markets at once, they have a clear picture of what is generally going on in the commodity markets. This allows them to avoid the kind of "blinkeredness" that may result from specialization in any one group of markets. In addition, most of the futures markets are closely related to each other, they are affected by the same economic factors. Consequently, price dynamics in one market or group of markets may be the key to unraveling where some completely different market or group of markets will go in the future.

TECHNICAL ANALYSIS FOR VARIOUS MEDIA OF TRADE

The principles of graphical analysis are applicable to fund, and on commodity markets. As a matter of fact, initially, technical analysis was used precisely on the stock exchange, and came to the commodity one a little later. But since they appeared futures deals on stock indices(stock index futures), the border between the stock and commodity markets is becoming more and more elusive. Technical principles also apply to analysis. international stock markets(International Stock Markets) (see Fig. 1.2).

Over the past ten years have become extremely popular financial futures, including on interest rates and world currencies. They have proven to be excellent objects for graphical analysis.

The principles of technical analysis can be successfully applied in operations with options and spreads. Since forecasting prices is one of the factors that must be taken into account by the hedger, the use of technical principles when hedging has immeasurable advantages.

TECHNICAL ANALYSIS FOR VARIOUS TIMES

Another strong point of technical analysis is the possibility of its application at any time interval. And it does not matter at all whether you are playing on fluctuations within one trading day, when every tick is important, or analyzing the medium-term trend, in any case you use the same principles. It is sometimes argued that technical analysis is only effective for short-term forecasting. In fact, this is not the case. Some people mistakenly believe that fundamental analysis is more suitable for long-term forecasts, while the lot of technical factors is only short-term analysis in order to determine the moments of entry and exit from the market. But, as practice shows, the use of weekly and monthly charts, covering the dynamics of the market over several years, for long-term forecasting is extremely fruitful.

Rice. 1.2 International stock markets

ECONOMIC FORECAST

Sometimes, many of us tend to view technical analysis from a very specific angle: as something used to predict prices and trade in the stock and futures markets. But after all, with the same success the principles of technical analysis can find themselves and wider application, for example, in the field of economic forecasts. Until now, this area of technical analysis was not very popular.

Technical analysis has proven its effectiveness in forecasting the development of financial markets. But do these forecasts have any value in a macroeconomic context? A few years ago, The Wall Street Journal published an article titled "Bond Sharps Are The Best Leading Indicators of Economic Bust and Bust." The main idea of the article was that bond prices record the coming changes in the economy with amazing clarity. The article contains the following statement:

"The bond market as a leading indicator outperforms not only the stock market, but any widely known leading indicator used by the US government."

What's important here? First of all, let's note the mention of the stock market. The Standarand & Poor's 500 Index is one of the twelve most common leading economic indicators used by the US Department of Commerce, citing data from the National Bureau of Economic Research in Cambridge, Massachusetts that the stock market is the best twelve leading indicators.The fact is that there are futures contracts for both bonds and the Standard & Poor's

500. Since both those and other contracts lend themselves well to technical analysis, it means, in the end, we are doing nothing more than economic forecasting, knowing it or not. The most striking example of this is the powerful upward trend in the bond and equity markets, which in the summer of 1982 heralded the end of the deepest and longest economic downturn since World War II. This signal remained at that time almost unnoticed by most economists.

The New York Coffee, Sugar and Cocoa Exchange (CSCE) has proposed the introduction of futures contracts for four economic indices, including the Housing Starts and the Consumer Price Index for Wage Earners. A new futures contract for the Commodity Research Bureau Futures Price Index is expected to be introduced. This index has long been used as a barometer to record the "pressure" of inflation. But, in fact, it can be used much more widely. An article in the Commodity Year Book (1984; Commodity Research Bureau, Inc) explores the relationship between the CRB index and all other economic indicators by analyzing four business cycles dating back to 1970 (see Fig. 1.3).

For example, it indicates that the values of the CRB index are closely related to the dynamics of the index of industrial production, in the sense that the index of futures prices, as a rule, anticipates the change in the values of the second index. The article says: "The apparent relationship between the CRB and industrial output indicates the effectiveness of the CRB as a broad economic indicator." (Stephen Cox, "The CRB Futures Price Index is a basket of 27 commodities that may soon become the subject of futures contracts", p. 4). From myself, I can only add that we have been drawing graphs and analyzing the dynamics of the CRB index for many years, and always with constant success.

Rice. 1.3 The chart shows a clear relationship between the SRV futures index (solid line) and the industrial production index (dashed line).

TECHNICAL ANALYST OR GRAPHIST?

As soon as they do not name those who are engaged in the practical application of technical analysis: technical analysts, graphists, market analysts. However, until recently, they all meant approximately the same. Now we can talk about some narrowing of specialization in this area, so the need for terminological distinctions is urgently ripe. So who is who? Since technical analysis ten years ago was based primarily on chart analysis, the words "chartist" and "technician" were essentially synonymous. Now this is not the case.

All technical analysis is gradually divided into different "spheres of influence" of two types of technical analysts. One type is the traditional "graphists". The other is "technical analysts", that is, those who use computer technology and statistical methods in their analysis. Of course, it is very difficult to draw a clear line here, and many technical analysts use both graphics and computer systems. But most of them still tend to gravitate towards one thing more often.

It does not matter whether this or that "graphist" uses computer technologies or not, the graph remains his main working tool. Everything else is secondary. The analysis of the graph, in any case, is a rather subjective matter. Its success largely depends on the skill of this particular analyst. It is not science, but rather art. It is no coincidence that in English this method is often called "art-charting".

In the case of using computer systems and statistical data, on the contrary, all particulars undergo quantitative analysis, checked and optimized in order to create mechanical trading systems. These systems or trading models, as they are also called, are in turn programmed so that the computer automatically gives signals to buy and sell. Regardless of the complexity of such systems, the main purpose of their creation is to minimize or completely exclude the subjective or human factor from the decision-making process, to provide a certain scientific basis for it. Analysts of this type may not use charts at all. But nevertheless, they are considered technical analysts, since their entire activity is reduced to the study of market dynamics.

The line of "narrow specialization" can be continued even further and subdivide "computer" technical analysts into those who prefer mechanical systems of the "black box" type; and those who use computer technology to create ever more advanced technical indicators. Representatives of the second group interpret these indicators independently and retain control over the decision-making process for themselves.

So, the differences between "graphists" and "technical analysts" can be formulated as follows:

every graphist is a technical analyst, but not every technical analyst is a graphist. Throughout this book, we will use both of these terms interchangeably. However, remember that there is a difference between the two. The construction and analysis of charts is only a particular aspect of technical analysis. A professional working in this field will prefer to be called a "technical analyst" rather than a "graphist", because the difference between these concepts is the same as between an athlete-runner and someone who jogs from a heart attack. It's all about professionalism, experience and dedication.

BRIEF COMPARISON OF TECHNICAL ANALYSIS ON STOCK AND FUTURE MARKETS

It is often asked whether the same technical methods that are used to analyze the stock market can be applied to analyze commodity futures. It is difficult to answer unequivocally here. Basically, the principles are the same, but there are a number of significant differences. The principles of technical analysis initially began to be applied precisely in the stock market and only later came the commodity market. Many basic tools - for example, bar charts, point-to-digital charts, price patterns, trading volume, trend lines, moving averages, oscillators - are used in both. Therefore, it is not so important where you first encountered these concepts: in the stock market or in the commodity market. It will not be difficult to rebuild. However, there are a number of common differences, which are related more to the very nature of the stock and commodity futures markets than to the tool that the analyst uses.

Pricing structure

The price structure in the commodity futures market is much more complicated than in the stock market. Each product is quoted in strictly defined units of account. For example, in grain markets it is cents per bushel, in livestock markets it is cents per pound, gold and silver are in dollars per ounce, and interest rates are in basis points. A trader must study the details of contracts in each market: on which exchange the operations are carried out, how a particular product is quoted, what are the maximum and minimum price changes and what are they equal in monetary terms.

Once you have decided which futures to trade and created an account with your chosen broker, you need to evaluate the market. Traders use two main types of analysis to evaluate most financial markets:

Fundamental analysis
Technical analysis

Fundamental analysis

Fundamental analysis involves the study of underlying factors that determine the price level of financial assets or commodities. The type of analysis will largely depend on which category of futures you choose to invest in. For example, if you decide to trade futures for treasury bonds, you need to analyze the main factors that affect the prices of these bonds. These factors include level and direction economic activity, monetary policy, supply and demand, investor sentiment, and daily economic and press releases. On the other hand, grain futures traders will be much more interested in analyzing weather reports, planted areas and yields, supply of alternative grains and shipping costs.

The two short examples above show that fundamental analysis of one market has little to do with fundamental analysis of another. This is why many traders choose to focus their attention on only one or two futures markets. This allows them to focus their efforts on developing keen analytical skills for, say, the oil market or the metals market. Switching quickly from one futures market to another, seeking to trade depending on how volatile or popular it is at the moment, is unlikely to be a successful approach.

Regardless of which market you choose, it is important to understand that you are likely to have some kind of informational flaw in relation to other market participants. There are two main types of market participants: speculators and hedgers. Speculators try to capitalize on price fluctuations while hedgers try to eliminate the risk associated with future price movements from their business. In some markets (for example, the interest rate futures market), a very well-informed and dedicated person could theoretically have the same amount of information required for analysis as a bank or an institutional investor. And in some other markets, it's just not practical.

For example, if you are a corn trader, no matter how many market reports you read, you are unlikely to navigate better than a farmer in Iowa or Nebraska, let alone a large agricultural company like Monsanto. It is the same in the oil market. Exxon is likely to have a better feel for the dynamics of supply and demand in the oil market over the next three months than even a very well-informed average trader.

Despite this lack of information, it is important to be as knowledgeable as possible about the chosen market. Remember, Monsanto or Exxon are interested in hedging their assets, not speculating on daily price movements. They are so large that their deals can be quite cumbersome. As an individual, you have the ability to be more flexible and opportunistic than some of the larger companies.

Regardless of which market you choose, before you start trading, you need to do a lot of research on the underlying principles and conditions of the market in order to maximize the opportunities for success.

Technical analysis

The second main type of analysis used to evaluate the futures markets is technical analysis. While fundamental analysis is concerned with determining the intrinsic value of an asset, technical analysis attempts to determine future price movement by evaluating previous price movements. While many market participants believe that chart analysis does not provide an idea of what will happen in the future, there are also many proponents of technical analysis, especially among short-term traders.

One of the advantages of technical analysis is that, unlike fundamental analysis, many of the charts and tools that technical analysts use can be applied to any type of market. This means that while a technical analyst may have the advantage of focusing on certain markets, he nevertheless has far more flexibility than a fundamental analyst.

Regardless of whether you decide to focus on fundamental or technical analysis, remember that you should not rely on one of them with the complete exception of the other. Many fundamental analysts examine charts to determine entry and exit points to trade in the direction they have discovered through their research. Likewise, even the most avid chartists pay attention to important fundamental events. (Regardless of what the chart says, if a hurricane destroys all major refineries, the price of oil is likely to rise because supply will decrease.)

Tools and Techniques

In addition to fundamental and technical analysis, there are many other tools and techniques that can aid in futures trading. The most important of these is risk management. As we discussed earlier, using leverage in futures trading increases both reward and risk. In order to avoid being thrown away by unexpected market rallies, private traders must practice strict risk management. This should include setting a stop loss level. This should be the level where you exit the trade and cut losses, regardless of whether you still believe in the original premise. Never forget the famous saying "Markets can remain irrational longer than you can remain solvent." Even if the initial premise is ultimately correct, irrational market movements can remain in place for much longer than they “should” and can drain all capital, especially when you are leveraging.

Often times, traders place physical stop loss orders when they enter a trade. These orders should automatically trigger and stop losses if the market goes against the trader.

Note: Such orders are good to use, but keep in mind that in very volatile markets they simply cannot be executed and losses will be much larger than planned

The last important risk management tool is diversification. This means that you have to spread your capital across a series of small rates in the futures market. Remember investing is a marathon, not a sprint. Diversification also means that futures trading should not be your only investment program. In addition to your trading account, you must have other, more long term investment supported in different styles using different market mechanisms.

The concept and indicators of the population

Potential GDP and its Difference from Actual Domestic Product

Presentation of accounting (financial) statements: new standard Presentation of accounting financial statements

The subject and method of economic theory

USN: Accounting policy of the organization on a simplified basis

Classification of costs for making decisions and forecasting the activities of the organization Time costs are taken into account when making management decisions

Ready-made accounting policy - a sample for the organization

Total population growth rate

Popular

Features of personal insurance The organization entered into a voluntary personal insurance contract for employees for a period of one year. Before the expiration of the contract, the organization ...

Personal insurance contract for employees Relations to protect the personal interests of individuals in the event of certain events (insured events) at the expense of funds formed from ...

Types of investments by regional basis Experienced investors know that money lying in a "three-liter jar" on a shelf or under a mattress is the most unprofitable way to "invest." Banknotes and coins ...