Patterns in Futures Trade

By: Sarah Carlye

Some traders look at the past history and patterns of futures while others stay in the present. Those who look at the entire picture will see different patterns than those who look at more recent patterns. Both traders will need to consider any current events, global events, and other factors that may have an influence on the patterns.

For the trader who studies patterns in history, they will often find that loss is recovered and profit made when looking at patterns over a few years or as many as 10 years. The patterns will change when events like the World Trade Center bombing and 9-11 are factored into the pattern. It is true that the trades are done today and not in the past, but those patterns can still be helpful. This is especially true of the trader who is serious about futures trading and is committed to the long haul. Times certainly have changed over the years, but the patterns that remain consistent and are not dependent on current events are the ones to pay attention to.

When current events (like terrorist attacks) have a consistent affect on the futures trade, there should be notes made. This information will be helpful when history repeats itself. When history repeats itself, there is the probability (not certainty) the patterns will also repeat themselves.

Studying historical patterns of futures trades takes time. Don’t solely rely on other’s research because it may be biased in their favor. This is especially true with firms and individuals that are trying to get you to invest in the futures trades that would benefit them and their companies. Combine global current events of the time with the futures trade history you are compiling.

Trading does happen in the present and more recent patterns should be considered also. Compiling historical data and analyzing can take time. Some trading can begin using recent patterns to gain experience trading futures. The experience acquired doing actual trades can be combined with the research of patterns to manage futures trading risks more efficiently.

When looking at current patterns, be observant. Here are some things to consider:

* Each day watch the patterns. It is this current information that can be used to set up the following day’s trades. As the patterns of the day are studied, look at current events. Conditions can change quickly, be sure to be on top of what is happening. Today’s events can make a difference in trading tomorrow.
* Obsessing on finding and evaluating every possible pattern that might help to see the most recent market action can be time consuming. It can even cause a significant patterns to be missed. Keep an eye on prominent defining characteristics. When the market displays a lot of gaps, determine what happens when they occurred. When the market makes a lot of inside bars, determine what happens when they occur.
* Focus on the most recent three days of trading when evaluating current patterns. Consistent patterns can be helpful and should be tested. There are no guarantees that a current pattern will continue. Even patterns that have been consistent for months will eventually change. Be cautious when testing.

Diversity is will always help manage risk. Have a pre-determined percentage of trades that will be for testing patterns. Have a pre-determined percentage that will be used for moderate risk trades and the balance for safe trades. The percentages should be determined by the level of loss you can comfortable afford. Not all patterns will provide profit potential within a short period of time. The trades that are used to test patterns should be both for short-term and long-term profit potential.

Combining data from patterns from history with current patterns will provide diversity in trades. There is nothing that can replace experience, so testing different patterns will be necessary.

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