Futures charts help determine futures market trends.
Futures charts depict market trends for futures contracts by closely following the price changes. In general, reading any securities chart falls under the umbrella of technical analysis. The purpose of technical analysis is to determine market trends to execute the appropriate strategy and, consequently, make money. Before attempting to read futures charts, it is helpful to study the fundamentals of futures. The charts may show different time periods, so it is imperative to pay attention to the type of timing the chart is showing to draw the correct conclusions.
Instructions
1. Gather basic information. Review the chart and verify that you are looking at the correct future. Figure out what time period the chart is depicting, whether 1 day, 1 week or 3 months.
2. Study the price bars. The point at the top of the bar represents the highest price for a given period (minute, hour, day), while the point at the bottom of the bar represents the lowest price for the same period. Take note of the opening and closing prices for your future; the short line on the left side of the bar represents the opening price and the line on the right represents the closing price. Determine whether your security opened high and experienced a drop in price in a given time period or if it opened low and experienced a price increase.
3. Predict whether the price of your future is on the rise or is getting ready to decline. See if you can draw a straight line up through the lowest points of each bar; if you can, it is a signal of an uptrend. Likewise, a straight downward line drawn through the high price points of the price bars signifies a downtrend.
If you find two or more of the same high price points close together and can draw a horizontal line through them, then you have found resistance---a perceived price ceiling that has been acting as a barrier to prices, preventing them from going any higher. Likewise, if you see two or more low price points and can draw a line through them, you have found what's called a support.
Other common formations are top-bottom formations. They are characterized by three important price points, at which the trend changes. The top formation looks like an "M"; it has two high price points at about the same level and one low price point in the middle. This generally signals an upcoming break that will be below the low point. The bottom formation has two lows and one peak in the middle and looks like a "W"; it usually means that there will be a break above the peak. Both of these can help you determine when to enter or exit the market.
A variety of other formations appear on the futures charts and may be helpful in predicting market trends.
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