The basic principle of technical analysis in futures is the same as the stock market,
but there are some significant differences:
1. Pricing Structure
2. Limited Life Span
3. Lower Margin Requirements
4. Time Frame Is Much Shorter
5. Greater Reliance on Timing
At first, the principles of technical analysis were performed in the stock market and only later adapted to futures. You can use some of the basic tools in both of them. Anyone who learns these concepts wouldn't have any troubles in these markets.
1. Pricing Structure
The complication of the pricing structure in stocks is less than in futures. Any goods express in different units and increments, like: Grain markets and Livestock markets .
Learning the contract details of each market is so important for traders.
Some of the contract details are:
1. Exchanging and trading goods.
2. Contract's expressing.
3. Minimum and maximum price increments.
4. The worth of price increments.
2. Limited Life Span
Future contracts have expiration dates, i.e. this contract can be out of dates but stocks no. The future contract trades for about a year and a half before expiration.
You have some problems with this limited life feature for longer range price forecasting.
You need continue new charts and stop trading of old contracts and you can't use an expired contract. New charts have new contracts with own technical indicators. Making an ongoing chart library by this contract rotation is a good idea but difficult. Computer users spend so much time and money for making new historical data as old contracts expire.
3. Lower Margin Requirements
This is probably the most important difference between stocks and futures. All futures are traded on margin, which is usually less than 10% of the value of the contract. As a result, these low margin requirements are big power, but, maybe, we make or lose large sums of money very fast in futures. Because a trader puts up only 10% of the value of the contract margin, then it will become double 10% or wipe it out.
The correct timing of entry and exit points is more important in futures trading and much more difficult and frustrating than market analysis. Technical trading skills are crucial in a successful future trading program.
4. Time Frame Is Much Shorter
Stock market technicians may talk about where the market will be in three or six months. Futures traders want to know where prices will be next week, tomorrow, or maybe even later this afternoon.
You can look at the moving average as an example:
-In stocks, the most commonly watched averages are 50 and 200 days.
-In commodities, most moving averages are under 40 days.
-A popular moving average combination in futures, for example, is 4, 9, and 18 days.
5. Greater Reliance on Timing
Timing is everything in futures trading. If you determine the correct direction of the market, you solve on of the trading problem's portion. If the timing of the entry point is off by a day or even minutes. It means the difference between a winner or a loser and if you are on the wrong side, you lose a lot of money. If you are on the right side, but you still lose your money, you are disappointed. These are frustrating and unnerving aspects of futures trading.
So, the fundamentals of futures trading are timing and correct direction.
