Futures Charts

Written by Jacey Harmon
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Charts show the price history of a futures contract in a visual format. It is easier to recognize price movements of a contract in visual form than simply a group of numbers in a spreadsheet. Traders use charts to identify whether the contract is in an uptrend or downtrend. Astute traders have come to recognize chart patterns that have historically occurred before major price changes.

Futures Charts and Chart Patterns

A futures chart is simply a graph that plots the price of a contract. There are several different chart forms: bar, line, candlestick and area. A bar chart is one where each session is represented by a bar on the graph. The vertical portion of the bar represents the session's daily range. The horizontal portions of the bar represent the contracts opening and closing price. Line charts do not show intraday action. Instead, they simply plot each session's closing price and "connect the dots" to create the line. Candlestick charts are a type of bar chart and area charts are a type of line chart.

Timeframes can be changed to show intraday action or long term price movements. One of the most common timeframes used by traders is the daily chart. The daily chart shows the daily price history of a contract over a period of several months. Traders use a daily chart to identify possible buy points or points of resistance. To get a long term picture of the contract's price history one should use a weekly chart. Similar to the daily, a weekly chart shows the price history on a weekly basis. A weekly chart can show two year's worth of price history.

Chart patterns have become popular amongst traders. One of the most popular patterns is called the "cup with handle." The cup pattern has some psychological importance, especially with stock futures. The pattern resembles the profile of a coffee cup and handle: basically a "U" with a tail on the upper right leg. As the contract's price approaches its left side peak, the contract will face resistance as traders anticipate the contract to peak at its previous top. As the contract trades sideways under the left side peak it forms the handle. As sellers thin out and demand remains strong, the contract will clear its former top and have no overhead resistance. When a cup is cleared, traders anticipate the price momentum to continue upward. Naturally, chart patterns like the cup pattern carry no guarantees they will succeed.

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