Futures trading is an incredibly risky venture. With all of the ups and downs in the futures cash market, it is imperative to understand the signals and know what to do when they occur. Of course, signals and the appropriate actions are all theoretical approaches to trade and the cash commodity market. However, traders do have some options to help minimize their risks and losses. Nonetheless, understanding the fundamentals of futures signals, values, and risks can better prepare any trader for the tasks that lie ahead.
It is important to understand the fundamentals of futures signals. Growth and inflation are the cornerstones of the futures markets. With an understanding of growth and inflation, traders are better equipped to make the right decisions. Basically, the prices on the futures market are based on what the market is expected to do. Thus, future predictions of growth and inflation are more important than the historical data on what the market has done in the past. Knowing the growth and inflation predictions enables the trader to make more sensible decisions in this regard.
While predictions are important, so are technical indicators. This deals with knowing trends and spotting indicators before the price becomes less-profitable. These indicators can come from historical data or a careful observation of prices over a period of time. There are also mathematical formulas for these indicators which include movements based on standard deviations from the equilibrium.
Traders should fully understand market values. Over the long term, prices tend to stabilize and equalize around a particular point (the market equilibrium). Price fluctuations are expected in both directions. Traders need to be able to distinguish between price fluctuations and trend reversals. Extreme price deviations are great signals for the trend reversals. The trick is to catch the reversal while the trader is ahead. This is not always simple, but it is something that can be learned and observed.
Additionally, traders should be aware of the trading behavior. Self-awareness is essential to controlling risky behavior. The term "Risk Appetite" refers to the trader's penchant for risky or safe acquisitions. By being self aware, the trader is at a psychological advantage and is more likely to make rational decisions.
In order to fully understand futures signals, investors must fully grasp the concept of supply and demand. Those that are the most successful at futures trading are those that understand all of the factors that play into supply and demand. Consistent and diligent research of any invested market will result in the best efforts and highest probability, as long as the investor follows through on what the research shows. Since the commodity market is highly fluctuating, a loss is inevitable even with the proper research.
Futures traders can help minimize their losses by pursuing several opportunities. A buyer can take a short futures position and hope the futures prices will go down. Alternatively, investors can place a limit or stop-loss order and only buy or sell if the desired price is reached. The Commodity Exchange Act also places in some protections for traders. This is governed by the Commodity Futures Trading Commission, which is an independent agency of the United States government.
Futures trading can be fun and profitable for investors with the right knowledge and information. A keen eye for signals and indicators is an added bonus. Investors also need to know what futures signals to look for and how to act accordingly. The best trader will act rationally and not out of fear or misunderstanding. A careful analysis of the supply and demand along with continuous research and consistent observations will yield the best results and will maximize profitability.
Andy West is a writer for NetPicks, which offers valuable trading services and products including futures signals services.