Whether your interest is in trading Stocks, Commodities, Indices or Foreign Exchange there are literally hundreds of web sites that will offer you ways to do this, on the premise of making you money. Not one of them, to my knowledge, will actually sit down with you and explain just how the markets really work.

There are probably two reasons for this. Firstly, there might be a few who actually know, but in the interest of empowerment, will not readily divulge their knowledge but meter it out peace-meal in a very cloaked way for financial gain.

The second reason, and more probable, is that they don’t actually know themselves how the markets work, but will have you believe they do, again for empowerment over you and financial gain. All of this gets you nowhere in your own quest to find out how the markets work, and until you do your level of success will be limited.

In fact some people who have years of experience trading the markets, have little knowledge of how the mechanics of the markets actually work. With this fundamental knowledge at their finger tips, future profits could be increased by a staggering proportion.

There is an old saying which you may have heard. ‘Prices are spiraling upwards’ or ‘Prices are spiraling out of control’ etc. The keyword here is ’spiraling’. This is precisely what occurs in every market year in, year out, prices spiral up and down.

The spiral is the basic mechanism by which all the markets actually work. To have a detailed understanding of how this mechanism works can literally transform your trading performance whatever your present level of skill or type of market in which you trade. Therefore, our quest to find understanding shall begin here.

Imagine each individual market is a giant cone which is inverted so it stands upright on its point.

Element One - Angles:

Look in from above the cone down into the large diameter. Divide this circle into 12 equal parts. This created 12 angles which start at the point of the cone and move outwards to the circumference.

Element Two - Spiral:

From the same point we start a spiral which moves up and around the cone (just like a spiral staircase).

Element Three - Price:

This spiral is the path the market price will follow, digit by digit, as it snakes its way up and down and around the cone.

Element Four - Time:

Go back to the 12 angles which divide the cone. We shall attach a specific date to each angle.

The Mechanism:

When the price starts its upward journey around the spiral it will make contact with certain angles on specific dates. This will halt the price advance and cause it to fall back down and around the spiral. The price will eventually strike an angle further down the spiral which will send it back on its upward journey.

This occurs in every market from one degree or another, every hour and every day that the particular market works. If the market price was falling from high levels, the mechanism would work inversely to the above.

If we knew the date which the price would strike a particular angle and change the market trend or direction we would have a great trading tool. In addition, if we also knew the price level at which this would occur we would have a formidable trading tool.

Don’t worry I am not about to disappoint. This formidable trading tool is called a Master Spiral Chart, of which there are several types.

To master the use of these charts in your chosen market will explode your profit potential.

About the Author

John Swift, a.k.a. Jack, is a successful stock & futures trader of some 12 years standing, web developer and author of Work-The-Markets The Natural Science of Market Analysis. Click Here

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Another way is to buy and sell options based on their deltas. Some of these trades are called delta neutral trades. Delta neutral trades are option trades in which the total delta of all the options is Zero. At the money options have a delta of 50.

If you buy an at the money call, you will have a delta of +50.

If you sell an at the money call, you will have a delta of -50.

If you buy an at the money put, you will have a delta of -50.

If you sell an at the money put, you will have a delta of +50.

Basically, the deltas will be determined by where you want the market to go. Think of it this way: If you sold an at the money call option, where would you want the market to move to? You would like it to go lower. So, you would have a delta of -50.

If you look at most at the money options, you will find that they are usually not at 50. That is because they are not exactly at the money. We still refer to these as the at the money options because they are the ones that are the closest to being there. It might have a delta of 47 or 53.

If you purchased one at the money call and one at the money put, you would be delta neutral. The call will have +50 deltas and the put will have -50 deltas. The total is zero. This is a very simple delta neutral trade.

Another delta neutral trade is a ratio back spread. An example of this trade would be to sell an option that is at the money and buy a greater number of out of the money options. You might sell one call option at the money (delta -50) and buy 2 call options out of the money (delta +25 each). You would be delta neutral. You would want to put this on for a credit or at even. You can also put it on for a debit but then you would care a little about market direction.

If you put it on for a credit or even money and the market was lower at expiration of the options, you would break even or earn a small credit. If you put it on for a debit, you would lose the debit amount if the market was lower at expiration of the options. In either case, if the market went sharply higher, you have a chance for unlimited profit, because you have purchased more options than you sold.

Most traders teach that ratio back spreads should be done in the far months only. This is because you have more time to be correct with a big move. The problem that I have found is that you are giving up too much for the time advantage. The options you buy out of the money are not priced at an advantage compared to the ones at the money. You can look at the theta to see how much each option will lose per day or per week.

You can also see that in order to have a lot of time left in the trade, the difference in strike prices between the option you sell and the options you buy are too much. It will take a bigger move before you have unlimited profit potential.

If you are expecting a big move, think differently than the norm and start to look at options that have 20 -40 days left. The options you buy compared to the options you sell, should be priced better. Everything is in relation to something else.

So the next time you hear someone recommending the same old ratio back spreads, take a look at the difference months to see where the real advantage is.

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If you are real confident and have a good reason to stay in after a violation of the first low you bought, averaging in once and possibly twice can be a good technique. This is done into the next lower spike and it takes nerve to do. If the futures market then breaks the second low you just bought, liquidate and take some time off. Obviously you are not seeing well, trading well and need to get away for a while.

I have a rule that if I am feeling frustrated and cannot understand what is going on, it usually means I am fighting against the trend. The “trend” of the market can also be a chop. The frustration is a sign I am trying to force my will on the market. There are days to just stay away. It?s so easy to give back money quickly when doing ?drunken sailor? trades. Knowing when NOT to play the commodity futures contract and options game is as important as knowing when.

It?s normal NOT to know what’s going on all the time in the futures markets. Sometimes we think we need to understand what the market is doing at all times. But if you can let it go when it talks in strange tongues and patiently wait for it to talk to you again in your native language, you will be rewarded with fewer losses.

I can still remember a drunken sailor trade I made about 10 years ago. The S&P 500 futures contract had rallied all day and it was about 15 minutes before the close. It was a roaring bull market, up maybe 20 points that day. I was having a poor day trading and couldn?t resist forcing one more try. This is usually a big mistake.

In those days you had to call the trading desk to place an order. The futures market was touching a big resistance area as shown by a technique I still use today. I figured it had to have a pull back. I didn?t consider the power of the last half hour on a Friday afternoon, nor used the futures time cycles I use today.

I got the desk on the phone and said, ?I want to sell one S&P 500 maxi at the market.? The order guy said in a loud, surprised voice, “you wanna SELL one S&P ?????? !!!? I said, ?Yes, I want to SELL one.? He said, “are you sure you wanna SELL one?? For some reason, every time I got that particular guy on the phone I had a loser, so I told him to forget the order and hung up. As a fitting epitaph, the futures market blew through the highs and it would have been an instant loser. Yes, I?ve made plenty of stupid trades. I?ve had my fair share. I?ve made every mistake a trader can make.

As one wise commodity futures trader once said, your success will depend on how you lose and how it affects you. Some commodity traders are devastated, while others bounce back. But then, some never learn from their mistakes and keep blowing themselves out.

A trader that can pull the trigger, handle losses well and remain patient to take only the best set ups is the person to model yourself after. These trading skills will come and go. We are never always on top. Being human and a discretionary, intuitive commodity futures trader can sometimes be tough. But I wouldn?t have it any other way.

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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The Euro is the new European currency. It’s easy to confuse the Euro with the "Eurodollar," which measures interest rates for funds held in European banks. The Euro has become the primary source of foreign exchange globally. It’s competing with the US Dollar as the primary store of value. It’s the most liquid and active currency futures contract traded and is well suited for day trading as well as longer-term positions.

An account margin of $3000 will control a $150,000 Euro futures contract. (at today’s market) Each full-point move in the Euro equates to a $1250 profit or loss. There is also a mini-contract that is one-half the full-size Euro.

More and more countries are becoming members of the Euro confederation. The Euro will probably become even more popular and liquid in the future. Euro futures trade 24 hours electronically on the Globex, stopping Friday evening and starting again on Sunday night. Euro options are pit traded and trade within specific hours.

The full-size Euro futures contract is perfect for seasoned traders. Novices have the choice of trading mini-contracts, which are also available on many of the other currencies. Since the trading hours are extensive, traders must be vigilant to a multiplicity of reports. Many of these will occur in the dead of night when most traders are sleeping in the U.S. This is one major reason why you need to use protective techniques for futures or short option positions.

Euro futures trade like the Swiss Franc. Their price charts look very much alike. The British Pound will look a little different but has a similar chart as well. The Japanese Yen will look much different but the turning points are usually the same. Currency traders are constantly looking for disparities and advantages that can be traded due to interest rate and political changes. The US Dollar Index also trades but is relatively illiquid compared to the Euro or Yen.

The other currencies that lend themselves to trading aggressively would be the Canadian Dollar and the Australian Dollar. The Canadian Dollar trades well and sometimes trades like the U.S Dollar, though other times it trades counter. The Australian Dollar is sometimes in synchronization with other Asian currencies. There are times when it trades more in rhythm with the Euro. In other words, these relationships are always changing and we need to study what is happening right now.

There are methods to trade other currencies against each other. For example, there is a Euro-Yen contract. The Euro-Yen contract maintains the relationship between the Euro-Yen without involving the US Dollar. You will still have to convert back to dollars after the trade is finished. Some of these currency contract combinations are quite liquid while others are not. Check the open interest and volume to see if you can enter and exit without getting a haircut.

Technically, the currencies exhibit patterns and wave structures that can be traded effectively. Patience is the key to let the market come to you. Day-traders are attracted to the currency markets. The short term swings, quick fills and great liquidity make this ideal for the trader who can handle the heat of the moment. If you are a short-term trader, make sure you trade that way. If you are long-term trader and can handle the risk, stay that way. I have seen many traders lose in the long run when they jump back and forth between methods in the middle of trades.

Here’s how I look for opportunities in the currency markets: First I generate a TimeLine forecast that shows a strong move up or down in a particular currency. The TimeLine is based on time cycles and other preprogrammed patterns. I then determine if the move is expected to be choppy, trending, and for how long. This helps us focus on possible directional futures/option positions or writing options in a range, or even writing options with the trend.

Next I use automated option software to search for the best of 1600 strategies based on the expected market move. I compare these option to option combinations against futures to options combinations. At some point I will find a compromise between risk, profit and simplicity in one or two strategies. In hindsight there’s always a best strategy we could have used. Keep this is mind when narrowing down the choices. When finished, we want to have one or two potential trades to work with. We call the selected few, "high probability, low risk trades."

Remember there is more to planning a trade than just coming up with a forecast. The market may move as predicted but we can still lose by choosing the wrong trading vehicles. Pick the right vehicles and strategies that will allow us to stay in the market without excessive fear, but still carrying calculated risk.

We NEED to take on calculated risk or the market will not pay us for our services. In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat us up. Excessive protection (risk avoidance) can come in the form of option premiums, too close-in stop loss orders - and overdone, complex spread strategies. Matching a forecast to a strategy is an important skill to succeed in commodity trading.

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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Take your TIME getting into a market. Go SLOWLY when committing capital. Some commodity futures traders act like they?re in a race with the market. It?s like they must get into the market NOW before they miss the whole move.

The commodity futures contract markets have been around for over a hundred years and have had many bull and bear markets. What?s the rush? The market is a paradox in many ways. Instead of giving its biggest and cleanest move in the beginning, it usually does so near the end. The price climax is usually the fastest part of the move and comes near the end.

The beginning of a commodity bull move is sometimes a frustrating affair with plenty of false starts and double or triple bottoms. It starts as a creeping, chopping uptrend.. The futures market usually gives us many chances to buy a dip or sell a rally. It rewards those who take their time getting in and committing capital slowly. The overworked trading rule about patience is true.

It seems whenever I MUST get into a market, I lose. The best trades are when I?ve stalked them as they slowly set up for a market turn. Impulsive trading is akin to reckless gambling. Rushing in is the fear of missing out. When fear plays an important role in a trading decision, you?ve already lost.

Over the years I?ve known many retail commodity futures brokers. Some serviced my account and others I?ve known working at various commodity brokerages myself. Ninety-nine percent of them are good people with good intentions. But like any profession, there are a few who can ruin it for the majority.

One of biggest problems I?ve seen is when the bad apple brokers create a ?sense of urgency? to enter a commodity position. Maybe they mean well, but this contagious emotional state simply mucks up the calm, collected attitude we need to trade well. Taken to an extreme, it can be commission driven. A few broker?s goals go something like: commissions first, making clients money second, and account survival third.

They have it backwards. It should be account survival first, making clients money second and commissions third. If the commodity futures or options account does not survive, then there is no way to make money or produce commissions. But if the account survives, it has a chance to make money. If it makes money, then commissions naturally follow.

By putting the client?s survival and making money first and second, commissions become the broker’s reward. This commodity broker will get referrals and build a business that can last. The alternative is a revolving door and endless problems.

Part Two of Four Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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While this kind of enthusiasm in trading is definitely good to have, it is also good to maintain a healthy amount of skepticism. For every person that is able to make a very good living from trading some kind of commodity, there are many others who get into trading and eventually fail. To be in the successful minority, you need to have some understanding of how trading works before you take the plunge and start dealing. By the time you get to the end of this article you will learn about futures trading, stock indexes and future index stock trading.

Futures Trading

One particular type of trading that has become really popular of late is futures trading. This type of trading does not actually involve any kind of physical stocks, bonds, currencies or anything of that nature, but rather involves the state of a proposition at a certain date and time. The date and time in question are referred to as the expiration date and the expiration time. A contract is then drawn stating whether or not the specific proposition will be over or under a certain value by the time the expiration date rolls around. An example of this would be the price of crude oil on January 28, 2007. Contracts circulate with different price predictions and as the price changes and the date gets closer to the actual date, the value of each contract goes up or down.

This is a very challenging type of trading to get involved in. However, for people that are good at predicting short-term fluctuations, it can end up being much more lucrative than just straight stock trading. Examples of futures trading include future stock trading, future index stock trading and future forex trading.

Stock Indexes

Another type of trading that is growing in popularity nowadays, is the trading of futures in stock indexes. Before you can understand exactly what this type of trading involves, you need to understand what a stock index is. Stock indexes are basically groups of stocks that are all related in some way to each other. The strength of the stock index is based on the combined strength of all of the different stocks that make up the stock index. The DOW, for example, is a stock index that is well known to seasoned traders as well as novices in the world of trading.

Now that you are reasonably familiar with what a stock index is, we can move onto the next section, which lists a relatively new and very exciting type of trading that many people are able to make a very nice living from. This kind of trading is referred to as future index stock trading.

Future Index Stock Trading

The concept of this type of trading has evolved due the fact that values of stock indexes are published at the end of each day and, therefore, it is possible to try and predict the future values of the stock indexes. As with other futures trading, there are contracts in existence with a specific figure and date and the values of these contracts fluctuate up or down depending on what a specific stock index does at the end of a particular day. You can buy and sell these futures just like you would any other futures and because of the ease of information available about stock indexes, many novice traders find this type of trading easier to get into.

If you are a novice looking to get into trading a bit more seriously, dealing in future index stock trading options is probably the way to go. You can read up more on the basic strategy involved and then using readily available information on fluctuations in a specific stock index, you can go ahead and buy or sell to your heart?s content.

Conclusion

Hopefully this article gave you a good glimpse into the world of futures and future index stock trading. Now that you know the basics of both of these potentially lucrative trading options, it is time to take things a step forward and accelerate your learning curve a bit more. One of the biggest factors that novice traders fail to take into account is the fact that they are not going to be able to make continuous expert predictions and a high percentage of good deals right off the bat. It takes time and experience to learn any market and because of that, it is important to make sure that you use proper money management techniques in your stock trading.

Do not ever use money that you cannot afford to lose. Divide your full bankroll into portions (i.e. into 25% chunks) and only use a portion of the bankroll at any specific time. Following both these steps will help ensure that your education and initiation into the world of stock trading will be as painless as possible. Following both these plans will also help ensure that you are not affected financially by any blunders made during your educational phase.

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If you are real confident and have a good reason to stay in after a violation of the first low you bought, averaging in once and possibly twice can be a good technique. This is done into the next lower spike and it takes nerve to do. If the futures market then breaks the second low you just bought, liquidate and take some time off. Obviously you are not seeing well, trading well and need to get away for a while.

I have a rule that if I am feeling frustrated and cannot understand what is going on, it usually means I am fighting against the trend. The “trend″ of the market can also be a chop. The frustration is a sign I am trying to force my will on the market. There are days to just stay away. It?s so easy to give back money quickly when doing ?drunken sailor? trades. Knowing when NOT to play the commodity futures contract and options game is as important as knowing when.

It?s normal NOT to know what’s going on all the time in the futures markets. Sometimes we think we need to understand what the market is doing at all times. But if you can let it go when it talks in strange tongues and patiently wait for it to talk to you again in your native language, you will be rewarded with fewer losses.

I can still remember a drunken sailor trade I made about 10 years ago. The S&P 500 futures contract had rallied all day and it was about 15 minutes before the close. It was a roaring bull market, up maybe 20 points that day. I was having a poor day trading and couldn?t resist forcing one more try. This is usually a big mistake.

In those days you had to call the trading desk to place an order. The futures market was touching a big resistance area as shown by a technique I still use today. I figured it had to have a pull back. I didn?t consider the power of the last half hour on a Friday afternoon, nor used the futures time cycles I use today.

I got the desk on the phone and said, ?I want to sell one S&P 500 maxi at the market.? The order guy said in a loud, surprised voice, “you wanna SELL one S&P ?????? !!!? I said, ?Yes, I want to SELL one.? He said, “are you sure you wanna SELL one?? For some reason, every time I got that particular guy on the phone I had a loser, so I told him to forget the order and hung up. As a fitting epitaph, the futures market blew through the highs and it would have been an instant loser. Yes, I?ve made plenty of stupid trades. I?ve had my fair share. I?ve made every mistake a trader can make.

As one wise commodity futures trader once said, your success will depend on how you lose and how it affects you. Some commodity traders are devastated, while others bounce back. But then, some never learn from their mistakes and keep blowing themselves out.

A trader that can pull the trigger, handle losses well and remain patient to take only the best set ups is the person to model yourself after. These trading skills will come and go. We are never always on top. Being human and a discretionary, intuitive commodity futures trader can sometimes be tough. But I wouldn?t have it any other way.

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Tags: day trading futures, day trade, day trade single stock, single stock futures pricing

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Futures are a mystery to most people, even some otherwise savvy investors. Ironically, futures (or their predecessors, “forward contracts”) are some of the oldest financial instruments known to man.

The Purpose of Futures

Futures are man’s attempt to conquer fate. That may be putting things a bit dramatically, but the truth is that man is rarely comfortable with uncertainty, and futures allow people to eliminate, or at least reduce, life’s ambiguities.

For example, when a 19th century farmer sold December corn futures in May, he knew exactly what price he would be getting for delivery of his crop, seven months ahead of time. This is the usefulness of futures.

Commodity Futures

The most common type of futures still stem from commodities. Corn, wheat, oats, soybeans, and sugar, as well as crude oil, natural gas, live cattle, and pork bellies are all examples of commodity futures. A farmer can sell a futures contract in order to lock in his price, and then buy back the same contract at a later date, either for a profit or loss, in order to avoid making delivery.

It is often impractical for a futures trader to either deliver or accept large quantities of corn or cattle, so most times contracts are “closed out” in this fashion. For people who have an actual interest in the commodities (farmers on the sell side, large users of the commodity on the buy side), this can be seen as a form of insurance.

For people who do not have a real interest in the commodities, this is seen as speculation, or the attempt to profit by predicting price movements of the future contracts.

Financial Futures

In addition to commodities, future contracts for various financial instruments are also actively traded. There are futures for various stock indices, Federal Funds interest rates, and almost everything imaginable. The amazing thing about these futures is how accurate they tend to be.

As explained in the book, The Wisdom of Crowds, the large pool of participants in these markets create an almost supernatural, hive mentality that has an uncanny knack for getting things right. If the futures market anticipates a Federal Funds rate hike, then chances are, there is one in the works.

A Brief History of Futures

Future contracts evolved from “forward contracts.” These were handshake agreements made between 19th century farmers and large buyers of their crops or livestock. For example, a farmer might have agreed in May to deliver 5,000 bushels of grain to a miller in September, at a set price.

This cut down on the stockpiling by stockyards that created price disequilibrium - the stockyards would buy grain cheap when supplies were high, and then sell it for a huge profit later in the year when their supplies began to dwindle. Farmers and large buyers decided to create forward contracts in order to eliminate these middlemen.

Unfortunately, there were problems with forward contracts. For one, buyers and sellers had a hard time finding one another - unlike in the financial markets of today. And more importantly, buyers and sellers could each renege on prior agreements without much consequence.

Future contracts, by contrast, are standardized, which makes finding buyers and sellers much easier. And they are regulated by exchanges, who enforce the contracts, if need be.

The Modern Futures Market

Today, futures are traded in the world’s greatest financial marketplaces. Some of them include the Chicago Board of Trade, the Chicago Mercantile Exchange, ICE Futures, Euronext, the London Metal Exchange, the Tokyo Commodity Exchange, the New York Board of Trade, and the New York Mercantile Exchange (NYMEX).

Today’s most popular commodities include crude oil and natural gas, as well as various metals, such as gold, copper, silver, and platinum.

About the Author

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Futures (All is Free)

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Futures trading is one of the most difficult concepts for novice investors to comprehend. To better understand the present of futures, it’s best to look back into the past.

Back to the Futures Part I - The Origins of Futures Trading

Futures has its roots in forward contracts. Although forward contracts date back to the Middle Ages, they became most popular in 18th and 19th century America. Way back then, farmers from across the American mid-west used to bring their grain to Chicago with each harvest.

Since there was a surplus of grain available at that one time, the stockyards were able to bid down the price paid to farmers. Then later in the year, as supplies dwindled, the stockyards would sell grain at a healthy premium.

Understandably, the farmers thought that this was unfair. Grain consumers also thought it was unfair. In the modern age, farmers and large grain purchasers can engage in futures trading in order to hedge their risks, but back then, there was no such thing as futures.

Instead, farmers and large consumers established forward contracts. In these arrangements, farmers would agree to supply a grain purchaser with an agreed-upon amount of grain at an agreed-upon price, and at an agreed-upon date and location - thus, eliminating the middleman.

Back to the Futures Part II - Why Futures Trading is Necessary

So why do we need futures when forward contracts seem to solve the problem? Well, while forward contracts solve some problems for farmers and consumers, they create new ones. First of all, there was no guaranteed way of enforcing the forward contracts.

Secondly, the market wasn’t very fluid. Prices could go up and down for little or no reason, and buyers and sellers had a hard time finding one another. Futures trading eliminates these problems.

For one, futures establishes standardized contracts. On the Chicago Board of Trade, for example, a futures trading corn contract is standardized to 5,000 bushels of U.S. No. 2 yellow corn, with delivery dates of either March, May, July, September, or December.

If a farmer wants to guarantee his price for corn, he can sell a futures contract today, and make delivery on the date specified in the contract.

Back to the Futures Part III - Futures Trading for Hedging or Speculating

In reality, few futures contracts are ever “delivered.” This means that a farmer who sells a May corn futures trading contract is unlikely to eventually deliver 5,000 bushels of No. 2 yellow corn to the Chicago Board of Trade, and the investor who buys the futures contract is unlikely to actually take possession of the corn.

Instead, people involved in futures trading typically “close out” their positions before they take delivery. For example, the farmer would most likely later buy a May contract, and the investor would most likely later sell one.

In the above case, the farmer would be using futures as a “hedge.” After all, the farmer may live hundreds of miles from Chicago, and delivery would be impractical if not impossible. In all likelihood, the farmer would sell his actual corn at a local market. His futures trading would be just to guarantee a given price.

For example, if the current price of corn were $2.40 per bushel, but the farmer feared it might drop, he could engage in futures to hedge by selling a later delivery of one contract (5,000 bushels) at $2.40 per bushel. Then, as the delivery date of the contract came near, he could buy an offsetting contract, thereby closing out his position.

If the price of corn went up, the farmer would lose money on his futures trading. If the price of corn went down, he would turn a profit, but either way, he would be hedged.

On the other hand, there are speculators. These investors aren’t participating in futures in order to hedge; they’re simply trying to make a profit. The good thing about speculators is that they help make markets more liquid.

This means that there is less volatility, and prices remain more accurate. For example, if the price of corn fell too low, speculators would come in and buy contracts in order to push the price back up. If the price of corn skyrocketed due to a short-lived panic, speculators would begin selling contracts and thus, driving the price down.

Speculators get a bad name in the mainstream media, but that’s because most newsmen and women don’t understand how financial markets work. If you’re a speculator engaged in futures trading, pat yourself on the back for doing our country and the world a great service.

About the Author

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at Futures Trading (All is Free)

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More S&ampP 500 and E-Mini Futures Contract Observations:

“When the e-mini futures price trend matches the A-D line, (advance-decline line) always wait to liquidate a position into a climax with big volume.“ The e-mini futures market has the strongest move (impulse wave) with the main trend. Watching the A-D line bias can usually identify the main trend. The e-mini futures market has a tendency to make higher highs and higher bottoms in this same direction.

The key here is to expect the move to end in fireworks with the same magnitude as the clean-out before. In other words, if a previous move down was slow and sluggish with a single bottom, don’t expect too much for the climax move up. But what if the previous sell off took out a weekly low with a big panic sell off, and formed a triple bottom that took all-day to build? In this case, you have good reason to expect the following up move to end with a bang.

It’s a matter of keeping the context of the move in mind. You can be in a choppy e-mini futures market for a day that goes nowhere, but maybe the previous day had a huge clean-out. So somewhere along the line expect an up move that continues. It’s all about keeping in mind what previous top or bottom the e-mini market is working against and what kind of move it can support.

Always be ready to bail out if your scenario does not work out. But there’s a danger in bailing out too quickly. Looking back at some of my S&ampP 500 futures trading notes from the mid-90’s makes me laugh. The theme throughout is, “If I only held my original position!” “Stopped out again at the exact low because I moved the stop up too soon.”

"Over-managing" a good trade is a symptom of fear. Some fear is healthy to keep us out of serious trouble. But when an e-mini trade is working out, by moving stops up too quickly, or simply starting out with too close a stop is a big mistake. We think we are smart because we can trade with such close stops and small risks, but this is a false sense of security that massages our ego.

To prove this to myself, I once did an e-mini futures contract computer study on averaging down four times. You would buy every spike that went one full point lower, until you had four lots. Then you liquidated everything if the e-mini went two more points after that. The worst scenario loss was six full points from the start. The win/loss ratio was very high, like in the 80% area. It almost seemed workable until I modeled a few one-way days. Then the method got slammed. If we could side-step those days by using say, a 2:1 or greater A-D line filter, then it might be a workable method.

By the way, the e-mini trading exits were a scale out affair too, similar to the entries. I eventually tossed out the idea after coming to the conclusion that I could not handle the pressure of adding to a loser more than once, plus I thought more highly of my ability to call a turn on the first or second try.

My e-mini futures trading method has evolved to averaging down only once during exceptional set ups and that is it. In fact, if it breaks the second low, the move is probably evolving into a "snuff" and all hell is about to break loose, so why hang around? ("Snuffs" are covered in this series of articles.

Part Two of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

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