Trading futures for dummies pdf

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aracer.mobi5/27/ PMPage iTrading Futures FORDUMmIES‰by Joe Duarte, MD Understand how margin and settlement works'. •. Understand the two sides of trading futures (long and short); and. •. Create rules for tackling the futures market . As its title suggests, this landmark book makes futures trading accessible to main- stream individual investors. The determination of whether futures are right for.

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Trading Futures For Dummies Pdf

In the United States, trading futures began in the midth century with the auction-like process that occurs on the Exchange trading floor or via CME Globex . Trading Futures For Dummies [Joe Duarte] on *FREE* shipping on qualifying offers. Explore single-stock futures, ETFs, and alternative energy. The process of trading commodities is also known as futures trading. Unlike other kinds of investments, such as stocks and bonds, when you trade futures, you.

Explore single-stock futures, ETFs, and alternative energy futures Protect your assets and maximize your profits in this risky yet lucrative market. Want to take advantage of the futures market? This plain-English guide gives you the surefire strategies you need to be a successful trader, with up-to-the-minute advice on the various types of futures, conducting research, finding a broker, entering and exiting positions, and minimizing your losses. You also get bearish and bullish strategies and tips for trading online. Joe Duarte is a widely read market analyst, writer, and an active trader. His daily Market IQ column is read by thousands of investors, futures and stock traders, information seekers, intelligence aficionados, and professionals around the world. Duarte is well recognized as a geopolitical and financial market analyst combining a unique set of viewpoints into an original blend of solutions for his audience. His daily columns appear at www. Would you like to tell us about a lower price? If you are a seller for this product, would you like to suggest updates through seller support? Explore single-stock futures, ETFs, and alternative energy futuresProtect your assets and maximize your profits in this risky yet lucrative marketWant to take advantage of the futures market?

You can jump directly to a specific article by clicking it in this list, or you can go to the Intermediate section and browse them all from there. Day Trading Rx - a list of steps to take to refine and tighten up your day trading. What's your futures trading blood type? We take these observations and put them into an easy to read publication that may help you discover your blood type and trading diet.

Buying Options on Futures Contracts - a page report put out by the National Futures Association as a guide to the uses and risks of options trading. Futures Options - a PDF of a collection of strategies and a guide to trading futures options. Key to Futures Trading - a letter about what the key to successful trading is in their opinion.

Advanced Futures Education on Trading Somebody advanced in commodities trading is most likely somebody who currently or recently day traded futures contracts, and understands the technical aspects of the market. This section is designed to give this type of person exposure to techniques and practices of other advanced traders to add to their knowledge. If this is your experience level we recommend you take a look at the in-depth coverage that the Advanced section contains, and there is a summary of its material below.

You can jump directly to a specific article by clicking it in this list, or you can go to the Advanced section and browse them all from there.

The option writer is on the other side of the trade. This investor has unlimited risk. Put Option A put option is the right to sell shares at the strike price at or before expiry. A trader buying this option hopes the price of the underlying stock will fall. Either the put buyer or the writer can close out their option position to lock in a profit or loss at any time before its expiration.

The put buyer may also choose to exercise the right to sell at the strike price.

Futures are most understandable when considered in terms of commodities such as corn or oil. Futures contracts are a true hedge investment. A farmer might want to lock in an acceptable price up front in case of market prices fall before the crop can be delivered. The buyer wants to lock in a price up front, too, in case of prices soar by the time the crop is delivered.

The seller, on the other hand, is losing out on a better deal.

Futures Trading Education

Who Trades Futures? There's a big difference between institutional and retail traders in the futures market. Futures were invented for institutional buyers.

These dealers intend to actually take possession of barrels of crude oil to sell to refiners, or tons of corn to sell to supermarket distributors. When you trade futures on margin, in most cases you download the right to participate in the price changes of the contract. In the futures market, your daily trading activity is marked to market, which means that your net gain or net loss from changes in price of the outstanding futures contracts open in your account is calculated and applied to your account each day at the end of the trading day.

Your gains are available for use the following day for additional trading or withdrawal from your account. Your net losses are removed from your account, reducing the amount you have to trade with or that you can withdraw from your account.

An example of an intramarket spread is downloading March crude oil and selling April crude. An example of an intermarket spread is downloading crude oil and selling gasoline. For more detailed information about margins, turn to Chapter 4. The answer is actually fairly simple. This chapter is by no means a complete treatise, but rather a broad overview of the major aspects of options on futures. In fact, when used properly, options give you an opportunity to diversify your holdings beyond traditional investments and to hedge your portfolio against risk.

To be sure, investors are increasingly interested and active in the options markets. And while many of the general concepts are the same, some important differences exist between the options of individual stocks and those of a futures contract. In this chapter, I cover the very basics of options on futures. This, though, is a highly complex topic which requires extensive space.

My goal here is to expose you only to the rudimentary concepts so that you can have a base for further reading. At the end of the chapter, I provide some important sources where you can get more details. Understanding the Financial Markets Getting Options on Futures Straight A futures contract is a standardized contract that calls for the delivery of a specific commodity at some time in the future.

Thus, unlike options on stocks, in which you take delivery of a lot consisting of at least and possibly more shares of stock, an option on a futures contract gives you the opportunity to download or sell the futures contract, not the underlying commodity. So when you exercise or assign your option on a futures contract, you receive the contract, not the cash value of the index, the soybeans, or the gold. That means that a one-point move in a stock index futures contract is a one-point move in the corresponding option.

T-bond futures and options are an exception. The former trade in 32nds, while the latter trade in 64ths. For example, March soybean options actually expire in February. You can get one from your broker, or see the December issue of Futures magazine for good calendars.

This means that you only pay the broker when you exit your position, instead of paying to both enter and exit, as with stock options. Check with your individual broker for his practices.

SPANning your margin Margin in futures and options on futures is different than margin on stocks. While margin in the context of stocks is a loan from your broker so you can download stock worth more money than you have, margin in the former two is just the amount of money that you have to have in your account to trade futures and futures on options.

Keep reading for a definition of SPAN margin. Some Basic Concepts About Options on Futures Moreover, margin becomes important in options on futures if you want to implement more sophisticated strategies, such as writing spreads. Spreads are sophisticated techniques used by traders to make money in sideways markets. The value of the spread is derived from the difference in two or more assets.

SPAN stands for Standard Portfolio ANalysis of risk, a practice used in the exchanges where options on futures trade the Chicago Board of Trade and the Chicago Mercantile Exchange in order to determine the entire risk of a portfolio, including all futures and options held within it.

SPAN is based on a sophisticated algorithm and is designed to help you make the best use of your trading capital. The algorithm is designed to calculate the worst possible one-day move in all your positions. Here are some general details on margin for options on futures strategies: Margin requirements fluctuate on a daily basis. Still, the interest earned on such a T-bill may be good enough to offset some of your transaction costs, another good thing about SPAN.

For more details on SPAN and options on futures, visit www. Types of options Two types of options are traded. One kind lets you speculate on prices of the underlying asset rising, and the other lets you bet on their fall. Options usually trade at a fraction of the price of the underlying asset, making them attractive to investors with small accounts. Calls I think of a call option as a bet that the underlying asset is going to rise in value. The more formal definition is that a call option gives you the right to download a defined amount of the underlying asset at a certain price before a certain amount of time expires.

Understanding the Financial Markets your option prior to expiration to avoid exercising it, to avoid further loss, or to profit if it has risen in value. Call options usually rise in price when the underlying asset rises in price. When you download a call option, you put up the option premium for the right to exercise an option to download the underlying asset before the call option expires. downloading the call option gives you the right to exercise it.

Puts Put options are bets that the price of the underlying asset is going to fall. downloading a put option gives you the right to sell a specific quantity of the underlying asset at a predetermined price, the strike price, during a certain amount of time. When you exercise a put option, you are exercising your right to sell the underlying asset at the strike price. Puts are sometimes thought of as portfolio insurance because they give you the option of selling a falling stock at a predetermined strike price.

Types of option traders Option downloaders are also known as holders, and option sellers are known as writers. Call option holders have the right to download a stipulated quantity of the underlying asset specified in the contract. Put option holders have the right to sell a specified amount of the underlying asset in the contract. Call and put holders can exercise those rights at the strike price.

Call option writers have the potential obligation to sell. Put option downloaders have the potential obligation to download. Breaking down the language barrier You need to know several terms to be able to trade options. Most of this stuff is fairly simple after you get the hang of it. This is the price that you pay for the option. This is the date on which your option expires.

After this date, your option is worthless. This is the predetermined price at which the underlying asset is bought or sold. A call option is said to be in the money whenever the strike price is less than the market price of the underlying security.

A put option is in the money whenever the strike price is greater than the market price of the underlying security. Options are considered at the money when the strike price and the market price are the same.

Calls are out of the money when the strike price is greater than the market price of the underlying security. Puts are out of the money if the strike price is less than the market price of the underlying security. Grappling with Greek Options require you to pick up a bit of the Greek language.

The Greeks, as they are commonly called, are measurements of risk that explain several variables that influence option prices. They are delta, gamma, theta, and vega.

John Summa, who operates a Web site called OptionsNerd. You can find it at www. But before actually getting into the Greek, you need to know the factors that influence the change in the price of an option. After that, I tell you how it all fits into the mix with the Greek terminology. The closer you get to the time of expiration, the more negative the time factor becomes for a holder of the option, and the less your potential for profit.

Time value shrinks as an option approaches expiration and is zero upon expiration of the option. An increase in the price of the underlying asset usually is a positive influence on the price of a call option. A decrease in the price of the underlying instrument usually is positive for put options and vice versa. Interest rates, a fourth influence, are less important most of the time. In general, higher interest rates make call options more expensive and put options less expensive.

Now that you know the major and minor influences on price, I can describe the Greeks. Delta is best understood as the amount of change in the price of an option for every one-point move in the underlying asset or the percentage of the change in price of the underlying asset that is reflected in the price of an option.

Delta values range from — to 0 for put options and from 0 to for calls, or —1 to 0 and 0 to 1 if you use the more commonly used expression in decimals. Puts have a negative delta number because of their inverse or negative relationship to the underlying asset.

Put premiums, or prices, fall when the underlying asset rises in price, and they rise when the underlying asset falls. Call options have a positive relationship to the underlying asset and thus a positive delta number.

As the price of the underlying asset goes up, so do call premiums, unless other variables are changed, such as implied volatility, time to expiration, and interest rates. Call premiums generally go down as the price of the underlying asset falls, as long as no other influences are putting undue pressure on the option.

An at-the-money call has a delta value of 0. Say, for example, that an at-the-money call option for wheat has a delta of 0. If the wheat futures contract associated with the option goes up ten cents, the premium on the option will rise by approximately five cents 0. Some Basic Concepts About Options on Futures The farther into the money the option premium advances, the closer the relationship between the price of the underlying asset and the price of the option becomes.

When delta approaches 1 for calls, or —1 for puts, the price of the option and the underlying asset move the same, assuming all the other variables remain under control.

Gamma Gamma measures the rate of change of delta in relation to the change in the price of the underlying asset. The best way to understand this concept is to look at an example like the one in Figure , which shows the changes in delta and gamma as the underlying asset changes in price. The chart was prepared by using OptionVue 5 Options Analytical Software, which is available from www.

Figure Understanding the Financial Markets The farther out of the money that a call option declines, the smaller the delta, because changes in the underlying asset cause only small changes in the option premium. In this case, the more out-of-the-money the option is, the better it gets for the short seller of the option. The — line is the at-the-money strike of the call option, and each column represents a one-point change in the underlying asset. The at-the-money gamma of the underlying asset for the option is —0.

What this tells you is that for every one-point move in the depicted futures contract, delta will increase by exactly 0. The position depicts a short call position that is losing money. Note also that delta is increasingly negative as the price of the option rises. Finally, with delta being at — If you move one column to the right in Figure , you see the delta changes to — Theta Theta is not often used by traders, but it is important because it measures the effect of time on options.

Understanding premium erosion due to the passage of time is critical to being successful at trading options. Often the effects of theta will offset the effects of delta, resulting in the trader being right about the direction of the move and still losing money. As time passes and option expiration grows near, the value of the time premium decreases, and the amount of decrease grows faster as option expiration nears. The value Understanding Volatility: Vega is expressed as a value and can be found in the fifth row of Figure , where the example cited in the figure shows that the short call option has a negative vega value — which tells you that the position will gain in price if the implied volatility falls.

The value of vega tells you how much the position will gain in this case. For example, if the at-the-money value for vega is — Volatility is a measure of how fast and how much prices of the underlying asset move and is key to understanding why option prices fluctuate and act the way they do.

In fact, volatility is the most important concept in options trading, but it also can be difficult to grasp unless taken in small bites. Fortunately, trading software programs provide a great deal of the information needed to keep track of volatility. Nevertheless, you need to keep in mind these two kinds of volatility: It usually rises when the markets are in downtrends and falls when the markets are in uptrends. It is calculated by figuring out the average deviation from the average price of the asset in the given time period.

Standard deviation is the most common way to calculate historical volatility. HV measures how fast prices of the underlying asset have been changing. It is stated as a percentage and summarizes the recent movements in price.

HV is always changing and has to be calculated on a daily basis. Because it can be very erratic, traders smooth out the numbers by using a moving average of the daily numbers. Moving averages are explained in detail in Chapter 7, which is about technical analysis. In general, though, the bigger the HV, the more an option is worth. HV is used to calculate the probability of a price movement occurring.

Whereas HV measures the rate of movement in the price of the underlying asset, IV measures the price movement of the option itself. Most of the time, IV is computed using a formula based on something called the Black-Scholes model, which was introduced in see the next section. The goal of the Black-Scholes model, which is highly theoretical for actual trading, is to calculate a fair market value of an option by incorporating multiple variables such as historical volatility, time premium, and strike price.

HV and IV are often different numbers. In fact, sometimes IV and HV actually are very close together. Yet the differences in these numbers at different stages of the market cycle can provide excellent trading opportunities. This concept is called options mispricing, and if you can understand how to use it, options mispricing can help you make better trading decisions.

For example, if IV rises dramatically and HV is very low, the underlying stock may be a possible candidate for a takeover.

Under those circumstances, the stock probably has been stuck in a trading range as the market awaits news. At the same time, option premiums may remain high because of the potential for sudden changes with regard to the deal. The bottom line is that HV and IV are useful tools in trading options. Most software programs will graph out these two variables. When they are charted, big spreads become easy to spot, and that enables you to look for trading opportunities.

Options screening software helps you cut through the clutter. For more sophisticated analysis than the bare-bones type provided by free software, you have to spend some money.

Many good options-trading programs are available. This program has been around since , and it has just about everything anyone could want to analyze options and find trades.

Many traders use OptionsVue and consider it the benchmark program. Most programs on the market are good enough to generate decent data. Some Practical Stuff In the preceding sections, I tell you about the nuts and bolts of options.

Options vs. Futures: What’s the Difference?

In this section, I give you a brief summary of some, but certainly not all, situations in which you might want to use options. There are two basic reasons to choose options as a trading vehicle. One is that you have limited amounts of money and want to trade.

And the other is that you are looking to combine leverage while limiting your risk. This is usually the first strategy that beginners use when they enter this sector and is best used when you are expecting the underlying asset to rally.

In this case, you are looking to protect a long position by selling a call option to someone and collecting the premium. This works better in markets that are falling or moving sideways. The following example, adapted from an article written by John Summa optionsnerd. The contract gained 6. Looking at the options, note in Figure that because the price of the contract rose, the price of the call options rose, and the price of the puts fell.

The reverse applies to the put options, as the figure shows. If you understand these rules, you can then apply them to your option strategies, which are of three basic types: Understanding the Financial Markets The following tips are the best advice I can give you when it comes to options, or any kind of investment or trading in the futures markets: Useful information sources Finally, here are some other places to get more details about options: Check out Book III, focusing on futures and options, by yours truly.

When you understand ETFs and how to make them work successfully, you can trade just about anything. This chapter helps you get your feet wet in futures trading through ETFs, which means you can trade without worrying about margin and when to roll over a contract.

Using the information and techniques in this chapter, you can participate in the general trends of the futures markets, including the agricultural, energy, bond, currency, and stock index futures contracts, with less threatening instruments. In other words, ETFs are instruments that let you take advantage of the overall profit potential of the futures markets without having to open a separate account for your trades.

Here are some of the things that I like best about ETFs: In other words, when conditions are right to download an oil ETF, they are also right for downloading oil futures. So after you master the techniques required to trade these ETFs, you can use them as a basis to trade futures directly.

How to Start Day Trading 2019

Just remember, this chapter is not meant to give you a false sense of security. ETFs that use futures and commodities as their underlying assets tend to follow the same basic trends of those markets. Thus, the same risks and potential for volatility apply.

This property lets you trade these vehicles when and where you want to. These ETFs resume trading after a brief period of time in the after-hours session. For example, the U. Oil Fund USO has a similar trading pattern and follows the same general price trend as crude oil. See next bullet.

If you prefer to sell short directly, you can sell any ETF short as you would any stock by borrowing shares from your broker in a margin account. You can trade ETF options as you would trade stock options. LEAPS let you bet on the longterm price of an underlying instrument, such as a stock. However, not all ETFs are created equal. Reading the fine print about how an ETF goes about its business is important. The Macroshare Funds for trading crude oil are an example.

These funds use derivative formulas based on the bond market to mimic the action in the oil market. Margin in the stock market is different than margin in the futures markets. The margin rules for the stock market are the margin rules that govern ETFs. See Chapters 3 and 4 to review margin rules. Also keep in mind that ETFs pay dividends, and this may have some tax consequences, as well as affecting the price of the fund. Read the prospectus and consult your financial advisor if necessary before you invest in any ETF.

Read the fine print on the prospectus or the online description of all ETFs. For example, Amex. The indexes in the following sections all have corresponding futures contracts. After you get the hang of working with these, you can expand your horizons. Futures are meant to be traded both short and long, so I list any short-selling funds that are available for any particular futures market in this section. Also, due to space limitations, I limit my discussion to the most liquid ETFs.

In the following sections, I discuss the most liquid and actively traded major stock indexes and their corresponding futures contracts. SPY works well when you want to trade the overall trend of the broad stock market.

Trading Futures Through the Side Door sell signals for the stock market. See Chapter 12 for more detail on stocking up on indexes. The index often moves in a big way, both up and down, offering great opportunities for active trading. This highly popular and liquid ETF contains the largest stocks that trade on the Nasdaq.

It works well as a proxy for the Nasdaq futures and the E-mini Nasdaq futures, which are both very popular contracts. Just remember that what goes up twofold also falls twofold. This ETF shorts the Nasdaq Index on a one-to-one basis, such that a 1 percent drop in the index leads roughly to a 1 percent rise in the price of PSQ.

In this case, QID rises twice the amount of the Nasdaq when the index falls. This is the way to trade the general trend of the Dow Jones Industrial Average. Its value is roughly one-tenth of the Dow Jones Industrial Average.

Understanding the Financial Markets Comfort via Commodity ETFs Commodities, at least as of February , seem to be in the midst of a multiyear, and perhaps a multidecade, bull market. Indeed, even dummies like us can trade oil, natural gas, commodities like wheat and soybeans, and bonds with little trouble as long as we have online stock trading accounts. Other chapters that are likely to be helpful in trading ETFs include Chapter 7 on technical analysis , Chapter 14 on trading metals and Chapter 17 on setting up your trading plan.

The energy markets offer great trading opportunities, and there are plenty of ETFs that you can use to participate. Oil Fund USO: This was the first ETF introduced to allow the actual trade of crude oil futures without owning futures contracts. It remains the most liquid, although it has some competitors. The key to success is to remember that USO follows the general price trend of crude oil, but the price is not the same as the leading crude oil futures.

But for my money, the fund, which has been around since , is very liquid and serves my purposes as it follows the trend of crude oil futures closely. When oil prices are rising, I want to own shares in USO. Trading Futures Through the Side Door or bearish trends at the same time. Still, if the energy sector is firing on all cylinders, this one is a good one.

Both crude grades get a The more volatile natural gas component gets a 10 percent weighing. This ETF has not been very successful given its inability to track the price of crude oil, either in price itself or in percentage terms. Much of the problem has been the illiquidity of the product.

On some days, only a few hundred shares trade hands, in contrast with USO, where hundreds of thousands of shares trade daily. If this fund worked correctly, it would rise in price when crude oil prices fall. In fact, on January 17, , the price of crude oil fell and DCR shares fell. Aside from embarrassing the issuer of the fund at the time Claymore Advisors , the incident raised questions about whether this fund would be viable.

Nevertheless, knowing about it is worthwhile, assuming it stays around. As of February , the fund was still available. And if oil ever falls for any extended period of time, this might be a good way to try to make money from the event, after careful scrutiny of how the fund is functioning at the time. UNG actually works pretty well at moving along with the fortunes of natural gas. It correlates with the rises and falls of the price of the underlying futures.

The major problem with UNG is the fact that natural gas is hugely volatile. So even in an ETF you could experience big intraday volatility. I have traded this fund many times and have had a difficult time making money, due to the nature of the underlying asset. Yet, if natural gas ever hits a bull market like crude oil has had since , this would be a good way to play it. This fund tracks a diversified commodity portfolio, including crude oil, heating oil, aluminum, corn, wheat, and gold.

It generally tracks the overall price of the commodities it houses, but is heavily weighted toward energy with crude oil 35 percent and heating oil 25 percent making up over half of the asset allocation. Aluminum accounts for Make no mistake about it, though; despite the diversification, this is no wallflower of an ETF. This is a good play on the agricultural commodities.

Options vs. Futures: What’s the Difference?

DBA tracks the price of corn, wheat, soybeans, and sugar with each commodity getting a 25 percent weighing in the ETF. It functions similarly to DBC, but is more volatile since it concentrates its assets on agriculture. Both DBA and DBC were doing well in early , as commodities were rising in price due to higher demand for goods in China and other emerging markets. This fund offers access to gold bullion without having to trade futures or take custody of bullion bars.

It also saves transaction fees. Gold makes up 80 percent of the portfolio, with silver carrying 20 percent of the load. This makes sense, given the volatility of the silver market. Each represents This is a good fund when the global economy is booming and demand for industrial metals is high. Getting Current with Currency ETFs Foreign currencies are an excellent way to profit from global market volatility, political instability, and other crises.

For the whole story on currencies, read Chapter In this section, I provide a good list of currency ETFs. All of them trade along the same trends as their underlying currencies. In the world of currency trading, not only can you trade dollars versus other currencies, but you can also engage in what is known as cross trading, or trading of Yen versus Swiss francs, euros versus Australian dollars, and so on. In this section, though, I concentrate only on ETFs that feature the dollar versus other currencies.

There are plenty of opportunities to trade currencies via ETFs: This ETF has relatively low volatility and is not the best way to trade the dollar when the trend is sideways because it generally rises and falls with the U.

Dollar Index, a slow-moving composite of the dollar against ten global currencies. This would be a good way to trade the dollar in a very longterm downtrend, but it has fairly low volatility and is not as good a vehicle for trading as are the individual currency funds that I describe in the next two bullets.

For more information on these ETFs, visit www. Understanding the Financial Markets The market had been acting fairly poorly since the start of January, but by January 15, things were getting pretty dicey.

On December 26, , on Joe-Duarte. Figure shows the uncharacteristically flat market during the holiday period in and the subsequent decline as well as the catalysts of the decline in early See Chapter 7 for more on the day moving average. The market stayed that way until January 10, when it rallied briefly and again tried to stabilize.

Figure shows the entry and exit points for the trade. SCS Daily Apple news hits stocks hard during the trading day. Intraday upside reversal triggers sell signal. SDS was sold as it reversed course.

SDS was bought as it broke out. Weaker volume on a rally is usually a sign of poor conviction. As I saw this phenomenon and noted that the market was still trading below its day moving average, the dividing line between bullish and bearish trends, I recommended entering SDS on a price above The entry point on SDS was triggered on January 15, when the market started selling off during the middle of the day. This was due to several announcements made by Apple Inc.

The news did not sit well with traders, who were already jittery about the general state of affairs. The position was stopped out that day at Understanding the Financial Markets Here are some other important things to note on Figures and To be sure, there is more to this trade than just watching the two instruments and the day moving average.

Other things to note: In this case, it was clearly down. It took this trade 11 days to materialize. I recommended the entry point of When good news leads to selling, the market is weak and you should be looking to either get out or sell short.

When the market started to rally on January 23, it was time to sell, and we did. This section gives you the tools you need to wade through trader talk and use economic reports effectively to make money.

I also tell you about the world of technical analysis, showing you the basics of reading price charts and using key technical indicators. You get effective tips on trading techniques, how to spot key market turning points by using market sentiment, and knowing when to trade against the grain.

That lack of connection, most often associated with stock trading, is not as often visible in the futures markets. This is especially so in the case of commodities, such as grains and the energy complex, because price changes in the markets often move through the system fairly rapidly and can be seen at the grocery store.

When I started trading, I was overwhelmed by the amount of data that was available, and I had a hard time correlating how that data was related to the movement of prices. To be honest, I thought that the whole thing was random. My first reaction was to ignore the data and concentrate on the charts. I knew I needed something else, so I began watching how the market moved in response to economic data. To be sure, this is not the only approach to trading, as there are purists on both sides of the aisle: This could have been remedied by a much finer use of different charting methods, as well as a better use of charts with different time frames.

Think of this book as a great place to get started. Achieving a balance among what I want to know about the economy, what I need to know, and what I can use took time. For me, the bottom line is this: Like many other successful traders, I understand how the markets and the monthly economic indicators can morph into a nice, reliable trading method.

And so this chapter focuses on the effects of important economic indicators on the bond markets, stock indexes, and currency markets. When I write, my goal is to make the examples not only as current as possible, but also universal, so that you can use them for an extended period of time. Most markets behave similarly, but certainly not identically, over time, so you have to be flexible in your interpretation of real-time trading.

When I provide examples, my goal is to give you as classic a set of parameters as possible. I purposely chose examples from April of how economic reports can affect the market for two major reasons. First, I wanted to show you that the concepts that I describe in the chapter are relevant to recent history, where the big event is the global economy during a controversial period in U.

And second, the period of time chosen had just about anything that a futures trader could ask for in the way of data that can move the markets, especially a significant amount of activity in the oil market, a booming housing market, and a Federal Reserve that was just hitting its stride in a major cycle of interest-rate hikes.

If you fast forward to or beyond, you will likely see different things happen, depending on the overall economy and how the market perceives the situation at the time. Yet, in the current world, the primary set of rules and circumstances that govern trading are no longer exclusive to the U.

As a trader you also have to be keenly aware of the effect of China and other emerging markets on the macro-market, that linked beast that was unleashed in the stock market crash of

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