Knowing trends, knowing tops and bottoms, and judging space are the key to making profits in futures trading. For traders, only by mastering certain methods and being able to identify the ups and downs of the market can they do a better job in the market.
Knowing trends: Grasping the main theme of the market
Definition and types of trends
Trends are the direction of price movement in the futures market. In technical analysis, they are mainly divided into upward trends, downward trends, and consolidation trends. The upward trend is manifested as a series of successively rising peaks and troughs, indicating that the market is dominated by bulls for a period of time; the downward trend is a series of successively falling peaks and troughs, which means that the short-selling force has the upper hand; the consolidation trend is that the price fluctuates within a certain range, without an obvious upward or downward tendency.
Methods for identifying trends
Moving average method
The moving average is one of the most commonly used trend identification tools. By calculating the average price within a certain period, price fluctuations can be smoothed and the trend direction of prices can be clearly displayed. For example, when a short-term moving average (such as the 5-day moving average) crosses over a long-term moving average (such as the 20-day moving average), it is usually considered a bullish signal, indicating that the market may enter an upward trend; conversely, when a short-term moving average crosses over a long-term moving average, it may be a signal of a downward trend. In futures trading, different varieties need to choose appropriate moving average periods due to their own volatility characteristics. For varieties with large fluctuations, a longer period may be required to more accurately reflect the trend.
Trend line drawing
Drawing trend lines is another intuitive trend identification method. In an upward trend, connecting the low points of the price forms an upward trend line. As long as the price remains above the trend line, the upward trend is considered to be continuous; in a downward trend, connecting the high points of the price forms a downward trend line. If the price is below the trend line, the trend continues. The effectiveness of a trend line depends on the number of connected points and the number of times it is touched. The more points and the more times it is touched, the more reliable the trend line is. For example, in gold futures trading, by drawing trend lines, you can clearly see the trend changes of gold prices over a period of time, providing a basis for trading decisions.
Know the top and bottom: Find the turning point of the market
Characteristics of the top and bottom
The top is usually accompanied by an increase in trading volume and a slowdown in the rate of price increase. When the market is in a frenzy of bullish atmosphere, prices continue to hit new highs, but trading volume cannot continue to expand or even begins to shrink, it is often a signal that the top is coming. At this time, the bullish force gradually weakens and the bearish force begins to accumulate. The bottom is the opposite. The trading volume gradually shrinks during the price decline. When the price no longer hits a new low and the trading volume begins to expand moderately, it may be a sign of the formation of the bottom. For example, at the bottom of the bear market in the crude oil futures market, it is often seen that the crude oil price is hovering at a low level and the trading volume is extremely shrinking. Then, as the buying gradually increases, the trading volume and price begin to rise.
Technical indicators for identifying tops and bottoms
Relative Strength Index (RSI)
RSI is an indicator that measures the degree of overbought and oversold in the market. When the RSI value exceeds 70, the market is in an overbought state, the price may face a correction, and the possibility of a top increases; when the RSI value is below 30, the market is in an oversold state, the price may rebound, and the possibility of a bottom increases. In futures trading, different futures products have different volatility characteristics, and the overbought and oversold ranges of RSI may need to be adjusted appropriately. For products with smaller fluctuations, the overbought and oversold ranges can be appropriately narrowed.
Bollinger Bands
The Bollinger Bands consist of three lines, the middle track is the moving average, and the upper and lower tracks are calculated based on the standard deviation of the price. When the price touches the upper track of the Bollinger Bands and is accompanied by other signals such as increased trading volume, it may be the top; when the price touches the lower track of the Bollinger Bands and shows signs of stabilization, it may be the bottom. In agricultural futures trading, Bollinger Bands can effectively help traders judge the top and bottom positions of prices, so as to formulate corresponding trading strategies.
Judgment of space: Calculating the amplitude of profit
The importance of space judgment
Judging the fluctuation space of prices is crucial to determining the profit target of transactions. If you only know the trend and the top and bottom, but cannot estimate the running space of prices, it is difficult to formulate a reasonable profit-taking strategy. For example, when going long on a certain futures product, if you can accurately judge the approximate space for price increases, you can take profits near the target price to avoid leaving the market too early or too late.
Methods of judging space
Proportional relationships in technical analysis
In technical analysis, there are some common proportional relationships that can be used for spatial judgment, such as the golden section line. By selecting a significant price fluctuation range and drawing the golden section line, key proportional positions such as 0.382, 0.5, and 0.618 can be obtained. In an upward trend, the price may get support and continue to rise when it pulls back to the golden section line; in a downward trend, the price may encounter resistance when it rebounds to the golden section line. These key proportional positions can be used as a reference for judging price space. For example, in copper futures trading, the golden section line can be used to make a preliminary estimate of the rising or falling space of copper prices.
Historical price range and fundamental analysis
Studying the historical price range can understand the approximate range of price fluctuations of a certain futures variety. At the same time, combined with fundamental analysis, such as the supply and demand relationship of commodities, the macroeconomic environment, etc., the price space can be judged more accurately. If a certain agricultural product has a significant reduction in supply due to a disaster, while demand is relatively stable, the current price increase space can be estimated based on the price increase in similar situations in history.
In futures trading, the three elements of identifying trends, knowing tops and bottoms, and judging space are interrelated and complementary. Traders need to continue to learn and practice, master these skills, and flexibly apply them to the trading process. At the same time, it should be noted that the market is complex and changeable, and any technical analysis is not absolute. It is necessary to combine risk management and a good trading mentality to achieve stable profits in futures trading. Only by accurately identifying trends, keenly perceiving tops and bottoms, and reasonably judging space can you stand out in the fierce competition in the futures market and reap your own profits.
