Futures trading is a type of investment where traders agree to buy or sell an asset at a specific price in the future. Futures contracts are used to hedge risk, as they allow companies to fix the price of goods or services they plan to purchase in the future.
When trading futures, it is essential to use technical indicators to help you make informed decisions. Technical indicators are mathematical formulas that examine past prices and volume data to identify trends and predict future movements. Many different technical indicators are available, so it is important to find ones that suit your trading style.
Moving averages are among the most favoured technical indicators used in futures trading. They are used to help identify a trend and can be used to determine when security is overbought or oversold. A moving average is calculated by studying the average price of a security over a given period.
There are different moving averages, including simple, exponential and weighted. Simple moving averages are the most recurrent and are calculated by adding up the closing prices for several periods and dividing them by the total periods. Exponential moving averages give more weight to recent prices, while weighted moving averages give more weight to older prices.
The MACD (moving average convergence divergence) indicator identifies when security is overbought or oversold. The MACD is calculated by taking the difference between two moving averages- a fast moving average and a slow-moving average. The fast-moving average is typically set to be shorter than the slow moving average.
You can use the MACD to generate buy and sell signals. When the MACD intersects above the signal line, it is considered a buy signal, and when it intersects below the signal line, it is considered a sell signal.
The RSI (relative strength index) indicator is another popular tool used in futures trading. It is used to measure how strong or weak a security is relative to its past performance. The RSI is calculated by taking the mean closing prices over a given number of periods and dividing it by the total periods.
The RSI is usually plotted on a scale from 0 to 100. Values from 70 and above indicate that a security is overbought, while values below 30 indicate that a security is oversold.
Bollinger bands are used to measure volatility in security. They are calculated by taking the standard deviation of the security’s closing prices over a given period. The bands are then plotted as two lines- an upper and lower band.
It is volatile when the security’s price moves outside of the Bollinger bands. You can use Bollinger bands to identify overbought and oversold conditions, as well as trend reversals.
The stochastic oscillator is used to measure the momentum of a security. It is calculated by taking the current price of a security divided by the highest price of the security over a given period and then multiplying this number by 100. The resulting number is plotted on a scale from 0 to 100.
When the stochastic oscillator moves above 80, it is considered to be overbought, while when it moves below 20, it is considered to be oversold.
The momentum indicator measures the strength of a security’s movement. The strength equals the difference between the security’s current price and the price ten periods ago. The momentum indicator is plotted on a scale from 0 to 100.
A high momentum indicator indicates that the security is experiencing a strong uptrend, while a low momentum indicator indicates that the security is experiencing a strong downtrend.
Volume-weighted moving average
The volume-weighted moving average (VWMA) is an indicator that gives more weight to recent prices. It is calculated by taking the mean of the security’s closing prices over a given number of periods and then weighting this total by the volume for each period.
The VWMA can identify trend reversals and measure the strength of a security’s trend.
You can use all of these indicators when trading futures with Saxo Bank.