Has anybody heard this line before? If you have you were probably out having a good time, perhaps celebrating a great trading day. This line also applies to the Commodity Futures markets. Futures markets are contracts being bought and sold that will all eventually expire. For example, the S&P contract will next be expiring the 3rd Friday of September. Before this contract expires the majority of the daily volume (number of contracts created by a buyer and seller each trading session) and open interest (number of outstanding contracts still not offset at the end of the regular trading session (RTH) and carried over into the extended trading hours (ETH)) will begin trading the next contract month December. This is also referred to as a rollover.
With the new Pro Futures class now being taught at Online Trading Academy there is going to be much more focus on other Futures markets than just the E-Mini Stock Indexes. Since each Commodity Futures contracts have unique contract specifications they also each have unique rollover dates before a contract expires.
We will focus on the Trade Station charting platform, but these rules will apply to any chart package you are using.
When it comes to charting Commodity Futures prices we have a host of ways of doing so. This is usually up to the individual trader to choose which one works for them. The key is consistency in using the same one all the time. If you keep switching between the different charting styles you may get paralysis of analysis trying to make a trading decision.
Since each Commodity Futures contract has an expiration we could simply plot just the contract month that is trading and use that for our supply/demand levels. For example you would enter the symbol for Corn to be CZ12. That would plot the December 2012 Corn contract, there are some disadvantageous to this. Eventually the contract will expire and you will not have any more price action for that contract nor will the Exchanges accept orders for expired contracts for obvious reasons. There are times when a contract specific chart works very well, but that is for another article. In the meantime we need a chart that will plot data that appears to have no contract expirations.
These charts are called continuous charts. A continuous chart is designed to splice on the next month in the contract cycle once the volume leaves the front month contract. This allows you to see the price action of contracts that have good liquidity and full bodied Candle patterns. Unlike a chart that is illiquid causing you to see dots and dashes making it very difficult to find good levels.
The continuation charting style I would like to discuss is the unadjusted type. To get… Continue Reading