Feeble Market Analysis

Market analysis is the lifeblood of futures trading. Reading, interpreting and understanding how the markets are reacting and how they are likely to react in future is critical in identifying trading opportunities. No matter what kind of strategy you implement in your futures trading you will be required to read the markets to some extent, and the strength and comprehensiveness of your market analysis will ultimately determine how accurately you are able to interpret future opportunities. Particularly given the nature of futures as an instrument, casting an eye to future values and market levels is more important than ever, so brushing up on your market analysis skills will never do you any harm.

One of the central failings of most unsuccessful traders (which is, by the way, the majority of traders that embark enthusiastically on the futures markets) is feeble market analysis. Without the ability to correctly understand the signals the markets may be giving off, you are left with little more than chance. And if there’s one thing you don’t want to do with futures, it’s gamble. Reading up on the markets and understanding the factors that weigh in to determining price is a crucial step towards rectifying any analytical market failures you may be guilty of, and in turn this will improve your ability to identify profitable trading opportunities.

What The Markets Are Telling You

Combating the plight of weak market analysis skills is core to finding more frequent, more profitable trading signals. In a nutshell, market analysis is all about understanding what the markets are telling you, and there is a surprisingly large amount of information that can come from an analysis of historic and present price data. When futures contracts are traded, they are subject to free market prices. That means they are effected in large part by supply and demand, and your mission when identifying trading signals is to look at the supply and demand situation, and whether there are internal market factors or external factors that might influence future movement.

When demand for a futures contract, or the underlying asset to which it relates, is high, prices are high. That’s because futures contracts are scarce, and therefore valuable to own – especially if underlying market prices look set to rise heavily over the lifespan of the contract. With every additional futures contract that is bought, the price incrementally increases. The reverse is true for futures that are being sold, which are therefore in more abundant supply. The markets will move up and down in relation to these prompts, and it can be possible to trade simply on the price data emerging from the markets. For instance, it might become apparent that there is an upwards trend in a market, which can allow you to speculate in the short term and bag a quick profit. You don’t need to understand why the markets are moving – just that they are, and that price data suggests they will continue to move in your direction over the short term.

Where Else You Should Look

Of course, simple price analysis isn’t always enough, and there will be circumstances in which having recourse to other factors, in addition to market data, will yield the best results. You should be an avid reader of online news and current affairs, and it doesn’t hurt to participate in futures trading forums and blogs either. There is a vast amount of information for you to digest, and it pays in terms of improving your market analysis skills to make sure you commit to learning it. The more you expose yourself to these prompts, and particularly to their resultant effects on the markets, the more quickly you will develop a familiarity and feel for reading the markets which will certainly stand you in good stead as you move forward through your trading career.

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