FUTURES

TRADE FUTURES
WITH AN EDGE

JONATHAN ROSE - FOUNDER, MASTERS IN TRADING

 IN T ROD U CT I ON
Hi, I'm Jonathan Rose - Founder of Masters in Trading. Our

mission is to even the playing field for traders through

cutting-edge technology, simple tips, strategies and

exposing our subscribers to real actionable opportunities.

You're reading this eBook because you want to trade

futures. There's nothing that comes close to the power of

a relative value, sophisticated and professional approach

when it comes to futures trading. My futures program,

Masters in Trading's Futures EDGE, has helped many

trade futures like a pro through timely information and

a cutting-edge proprietary futures charting platform. The

purpose of this eBook is to provide you with a sub-set of

this valuable information!

Happy Trading!

Jonathan Rose, Founder - Masters in Trading

https://mastersintrading.com

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 CONT E NTS

01
R E L A T I V E V A L U E R E L A T I O N S H I P I N
F U T U R E S C O N T R A C T S : G O L D & S I L V E R
T R A D E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

02 M I C R O F U T U R E S : T R A D I N G E Q U I T Y
F U T U R E S W I T H A S M A L L
A C C O U N T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2

03
A U N I Q U E W A Y T O T R A D E F U T U R E S :
I M P L I E D V O L A T I L I T Y
B A N D S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8

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 01

MASTERSINTRADING.COM
RELATIVE VALUE
RELATIONSHIP TRADING
IN FUTURES
CONTRACTS: GOLD &
SILVER TRADES

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 cha pt er 1: r el a t i ve va l ue r ea l t i o nshi p t r a d i ng i n f ut u r es c o n t r a c t s
RELATIVE VALUE RELATIONSHIP TRADING
IN FUTURES CONTRACTS; GOLD AND SILVER
FUTURES TRADES

How to Trade Futures Using Relative Value Market Analysis

For this article, we will focus exclusively on the commodities asset class. In commodities,

a relative value strategy capitalizes on short-term pricing differences of two commodities

that have moved together directionally on a historical basis. The underlying philosophy

of relative value traders is that no securities trade is isolated in a vacuum. As such, if two

securities have been identified to have a reasonable degree of historical correlation, a

sharp movement in either direction (upward or downward) of one of the securities opens

up a short-term trading opportunity for the other security. This can be exploited to capture

the profit from the pricing differential.

Using Masters in Trading proprietary Futures EDGE Charting platform, notice the relative value historical
relationship between WTI Oil Futures (/CL_F), Heating Oil Futures(/HO_F), and RB Gasoline Futures(RB_F).

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“ As fear in the
marketplace increases
and investor confidence
in assets such as equities
and fixed income
diminishes, investors
undertake a flight to
safety.”

diminishes, investors undertake a flight to

Silver-Gold Relationship During safety (also called a flight to quality).

COVID-Impacted Markets
Once the effects of the COVID-19 pandemic This flight to safety concept essentially

started permeating into the financial means that investments which are perceived

markets, a fundamental divide began to have a higher risk factor associated

to occur between gold and silver prices with them, such as equities, are sold. In

which had historically moved closely contrast, “safer” investments are bought

with each other. More specifically, gold up in larger quantities. For years, gold has

rallied while silver moved in the opposite been seen as a ‘safe haven’ owing to its

direction. So what was the primary cause status as a store of value. This is because,

of this acceleration in the price of gold? In unlike currency – which can be printed in

a nutshell, it was attributable to human theoretically limitless quantities – there is

psychology. As fear in the marketplace a limited supply of gold that can be dug up

increases and investor confidence in from the ground. As such, when investors

assets such as equities and fixed income believe that an adverse event is likely to

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cause an extended market decline, they start buying up gold, which then increases demand

and, subsequently, pricing. As retail traders dive into the more liquid futures contract like

Gold the less liquid Silver Futures found no buyers and subsequently plunged.

In Futures EDGE, notice the timeframe in early 2020, when the news of Covid hit the futures market. Gold
Futures shown in red rallied, while the Silver futures in green sold off. This dislocation in the correlated
metals market was back to normal after silver had a huge rally from April 2020 to September 2020.

In the months following COVID-induced economic shutdowns around the world, investors

started piling into gold. This exaggerated demand drove its price to an all-time high of

$2074.88 in August 2020, as evidenced by the chart above. On the other hand, while silver

is also negatively correlated with equities, it is not viewed to be as effective of a safe haven

as gold. As such, increases in silver pricing lagged behind gold. Therefore, from a trader’s

standpoint, it was clear that silver would eventually catch up to gold based on historical

trends. While the timing and the degree of correlation were uncertain, traders who followed

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Soon enough, that is precisely what

happened. If you track the gold (red line

in the chart above) and silver (green in the

chart above) price lines, you will notice

them widening during the initial onset of

COVID-19 (around March to April 2020)

before starting to converge around May

2020. This difference between the two

prices – called the ‘gold-silver spread’-

highlights how the metals may break their

historical correlative movement from time

to time, but always end up reverting. That

the relative value strategy were confident reversion is what relative value traders look

that silver would slowly but surely follow to identify at an early stage and capitalize

the trend of gold. on to earn outsized profits.

Notice that spike in 2020? After Covid was the largest spike in the Gold/Silver chart since historians have
tracked this relationship going back to the late 1800s.

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Commodities During Times of the price of gold. During times of inflation,

Inflation goods become more expensive, and the

In October 2021, US inflation surged to dollar becomes less valuable. As gold is

6.2%. This rate was the highest annual denominated in the dollar, any increase in

inflation in over three decades and inflation leads to an increase in the pricing

even exceeded consensus economic of the metal too.

forecasts of 5.8%. This inflation rate is

attributable to multiple reasons, most For a relative value trader, this relationship

notably the below: presents a compelling opportunity. As

• The US Government is increasing investors sell riskier assets to buy gold and

the supply of money faster than protect the value of their money, the price

the rate of economic growth in the of gold rises higher at a faster pace. As we

country. When central banks flood saw from the chart above, the gold-silver

markets with liquidity at this pace, spread initially widens before coming

people and companies within the together again as silver catches up to gold

economy now have more to spend. over a longer period. A savvy relative value

In other words, more money is now investor will therefore know that as the

chasing the same supply of goods

and services, thus elevating prices.

• The US Dollar has recently been

devalued, making imported goods

more expensive to purchase.

This gives rise to the question: what

happens to gold pricing when inflation

rises? The short answer is that an

increase in inflation causes a rise in

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Federal Reserve increases the money to continue its recent growth. In this

supply in the economy, the price of new paradigm, copper will play a

gold will inevitably rise due to the flight transformational role due to its usage

to safety. From there, the price of silver in vehicle production and the broader

and other precious metals that are infrastructure of EVs.

negatively correlated to equities will

also increase, albeit at a slower pace. Based on the Copper Development

This lag presents an opportunity to Association research, hybrid and battery-

capture potentially large profits. operated vehicles use between 85 to

183 pounds of copper within each car

As we anticipate inflation continuing to based on its properties as an excellent

be a concern in the financial markets, conductor of electricity. As such, the

we remain strongly bullish on the greater adoption of EVs around the world

prospects of silver and continue to hold spells excellent news for copper, and by

conviction in the efficacy of precious extension, other precious metals whose

metals as a hedge against inflation. prices correlate with that of copper.

Electric Car Revolution: A How Can I Take Advantage?

Catalyst for Copper We remain highly optimistic on precious

The proliferation of electric vehicles metals prices, particularly, silver and

further affirms our bullish thesis copper, within the next 6 to 12 months.

on precious metals pricing both We anticipate that markets will once

in North America and around the again demonstrate their historical

world. As carbon emission reduction tendency to gravitate towards safer

becomes a priority for automakers assets such as gold in an inflationary

and governments worldwide, electric environment. Based on the relative

vehicle (EV) adoption looks primed value trading strategy, this increase

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“There are several ways
to increase exposure to
these precious metals
within a portfolio for
traders looking to get in
on the action”

Trades shared with the Masters in Trading

in gold will eventually translate into an community include buying long term

increase in the price of silver. On the other options in copper, specifically Freeport

hand, our copper thesis is driven more by Mcmoran, symbol $FCX. We also favor long

positive demand-side dynamics of the metal term positions in silver miners like $PAAS.

stemming from the transition from internal We also share Futures relative value

combustion engines to electric vehicles. futures trades with our community to take

advantage of breakdowns in these longer

There are several ways to increase exposure term relationship trades.

to these precious metals within a portfolio

for traders looking to get in on the action.

Stacy Brovitz, a Chartered
Based on their specific risk appetite and
Financial Analyst (CFA)
preferences, traders may opt to buy
designation holder, is a long
commodities futures, options or directly term Masters in Trading client

invest in the stock of companies mining and and successful, seasoned

investor. He has worked on Wall Street,

marketing these metals. All of the above
are effective ways to capture some of the
upside that the commodities markets are
owned, operated and managed multinational
manufacturing companies and is very active in
his community. He regularly provides insight by

likely to see in the upcoming months. writing for Masters in Trading's Insights blog.

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MASTERSINTRADING.COM
MICRO FUTURES:
TRADING
EQUITY FUTURES WITH
A SMALL ACCOUNT

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 cha pt er 2: mi cr fut ur es: t r a d i ng eq ui t y fut ur es w i t h a s m a l l a c c o u n t
Micro Futures: Trading Equity Futures
with a Small Account

More and more retail traders are either investment that’s based on the price of the S

interested in or already trading equity & P 500 index. Futures are called derivatives

futures. With the recent volatility, futures because their value is “derived” from the

seem like the perfect price of another

instrument to trade instrument or

“ I remember talking
for quick profits:
with Warren as he told benchmark; in this

take a position, get me about the incredible case the S & P 500

the direction right, opportunity in the Index. These futures

watch them take cryptocurrency space.” are an easy, capital

off (don’t blink) efficient way to trade

and make money! the direction of this

But the “regular” equity futures (/ES, / basket of stocks or the general direction of

NQ or /RTY) can require a significant equity markets.

amount of margin (especially if you’re

trading multiple contracts) and can have How do S & P 500 Futures Work?

considerable swings in value. What if Let’s say you’re bullish the overall equity

you have a smaller account, are just markets and you want exposure to the

starting to trade equity futures or aren’t overall market but don’t want the risk

interested in taking a significant amount associated with trading an individual

risk? Let’s discuss an alternative focused stock. One possibility is to buy one S & P

on the S & P 500 futures. 500 futures contract; commonly referred to

(and its symbol on many trading platforms)

What are S & P 500 Futures? as the /ES (often called the E-Minis). Buying

S & P 500 futures are contracts that this contract is the equivalent of buying 500

provide a trader or investor with an shares of the $SPY. For every $1 move in the

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in 500 $SPY shares (with the $SPY at

$455.00) is $227,500. A typical broker

will require margin of 50% or $113,750 (if

you have a margin account). If the Index

moves 100 points, the $SPY will move $10

and you’ll make $5,000! The return on

capital is about 4.4% ($5,000/$113,750) –

not too bad especially if it happens in a

short period of time!

As an alternative, assume the margin

requirement for 1 /ES contract,

controlling 500 $SPY shares, is $12,000.

S & P 500 Index, the $SPY moves about The margin requirement will be broker

$.10 (the $SPY is 1/10th the size of the dependent; the margin calculation is

Index). So if the /ES is the equivalent of more complicated than the single number

buying 500 $SPY shares, and the Index presented here and will change (quickly –

increases by 1 point, the $SPY increases especially in a move against you) as the

by $.10 and the /ES will increase by $50 Index moves. The same 100 point move

(500 $SPY shares X $.10 increase in price). in the Index, will generate the same profit

A 50 point move in the Index results in a of $5,000 but will generate a return on

$2,500 move in one /ES contract. capital of 42% ($5,000/$12,000)! That’s a

lot of leverage resulting in a much more

Why use the /ES Rather Than efficient use of capital! Of course, if

Buying $SPY you’re wrong, the losses and additional

The short answer is that it is a much more margin requirements can move against

efficient use of capital. The investment you very quickly.

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How can You Trade the S & P the /MES great for smaller accounts but

500 Futures With a Smaller also if you like to trade multiple contracts

Account? for more effective money management.

Many retail traders have smaller

accounts that can’t justify the risk or the Masters In Trading Futures
margin requirements. How can they trade Charting Platform – Tracking
futures? Futures Relative Value
Trading relative value is one of Masters

There is an S & P 500 micro futures contract in Trading key concepts. Any futures

with the symbol /MES instrument is not cheap

for those traders that or expensive on its own;

“Many retail
want to trade smaller it’s cheap or expensive
traders have
with less risk. The /MES relative to another
smaller accounts
is 1/10th the size of the futures instrument.
that can’t
/ES or the equivalent of
justify the risk
50 $SPY shares. Each Masters In Trading
or the margin
1 point movement in has developed its own
requirements. How
the Index is worth $5 charting system for
can they trade
and the margin for charting individual
futures?”
each contract is around futures and the relative

$1,200 (depending on value of a series of

your broker). The same futures.

100 point move in the Index results in

a $500 change in the value of the /MES. Here’s a comparison of the S & P vs.

This has the same capital efficiency as the NASDAQ vs. Russell vs. Dow futures for the

/ES just in a smaller package! Not only is last 90 days on the new charting platform:

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Which futures is the cheapest? Which is the most expensive?

The list of symbols available include (at the time of this writing):

• Equities (/ES, /NQ, /RTY, /YM)

• Bonds (/ZT, /ZF, /ZN, /TN, /ZB, /UB)

• Energies (/CL, /NG, /HO, /RB)

• Metals (/GC, /SI, /PL, /PA, /HG)

• Currencies (/DX, /6E, /6B, /6C, /6S, /6A, /6J)

• Cryptos (/BTC, /ETH, /MBT, /MET)

• Agriculturals (/ZM, /ZL, /ZS)

Yes! Here are some smaller contracts (micros) for

other futures:

• NASDAQ: /MNQ

• Russell /M2K

• Oil /MCL

• Gold /MGC

• Silver /SIL

• Dow /MYM

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There are micros for agricultures,

energies, foreign exchange, cryptos, Stacy Brovitz, a Chartered

Financial Analyst (CFA)

etc. Check out the futures exchange
designation holder, is
websites and your broker for additional
a long term Masters
information and margin requirements. in Trading client and

Volume, liquidity, and trading hours will successful, seasoned investor. He has worked

on Wall Street, owned, operated and managed

vary by contract. Please make sure you
multinational manufacturing companies and
do your own research and remember:
is very active in his community. He regularly

paper trade, paper trade, paper trade provides insight by writing for Masters in

until you’re 100% prepared to manage Trading's Insights blog.

your risk.

Masters in Trading
Futures Program
"Taking trading full time and putting my 2 week notice in today! I'm giving up my net-
work engineering career at Facebook to explore this avenue. Without your coaching, I
wouldn't feel comfortable enough to take the leap!"

-Pablo Lucena

LEARN MORE

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MASTERSINTRADING.COM
A UNIQUE WAY TO
TRADE FUTURES:
IMPLIED VOLATILITY
BANDS

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A Unique Way to Trade Futures:
Implied Volatility Bands

The Federal Reserve is tightening and key elements to this approach that are

draining liquidity from the economy. unique (again using the /ZB as an example

The Treasury is forecasted to increase – this can be used for any equity, currency,

its issuance of bills, notes, and bonds. agricultural, etc. future that has options):

There is considerable uncertainty

around the future of the economy – Dollar Value Change

are we headed for a “soft landing”, The Futures Edge Tool does not use price.

a full-blown recession or something It tracks the change in dollar value (actually

in between. Has inflation peaked? the P & L) of the /ZB over the time period

Will geopolitical tensions increase or analyzed. For example, the chart will show

decrease? What’s the result? Bonds are the /ZB has moved $500 in value rather than

in play! Let’s use the Volatility Bands, an a half a point (32 ticks). This enables the

important feature of Masters in Trading trader to explicitly track the P & L of the

Proprietary Bond Edge Tool, to identify analyzed move in the /ZB and allows for the

bond futures (/ZB) trade opportunities direct comparison of the movement of the /

presented by this increased uncertainty. ZB with other bond futures.

What are the Key Elements of The Cycle

This Approach
A Cycle is similar to a timeframe. The Cycle
This approach is different than any other
represents the trader’s desired time period
you will find. It doesn’t use price or technical
to analyze and track the movement of the /
analysis but relies on actual options
ZB to determine potential entries and exits.
pricing to identify trade opportunities.
The Cycle can be a day, week, month, quarter,
It can be used for short term trading or
year, or time between options expirations
longer-term positions. There are several
or multiples of any of these. For example,

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 cha pt er 3: t r a d i ng fut ur es usi ng i mpl i ed vo l a t i l i t y b a n d s
the Cycle can be a week, 2 weeks, 3 weeks, the change in price).

etc. The most important factor is that the Before describing the final (and most

movement of the /ZB is reset to $0 at the important key element), let’s review an

start of each Cycle and tracked until the example of the change in dollar value

end of the Cycle (remember the Edge Tool of the /ZB over a series of 1-week Cycles

charts the change in value of the /ZB not using the chart below:

Notice a few things on this /ZB chart:

• The time periods are broken up into 1-week Cycles. The start and end of each Cycle is

identified by the red, dashed vertical line.

• The blue line charts the change in value of the /ZB since the start of the Cycle.

• The value is reset to $0 at the start of each Cycle (as identified by the orange circles).

The purple line represents the $0 value.

• The right-hand Y axis (in the white circle) shows the change in value.

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The final and most important element is the Volatility Bands. The Volatility Bands

represent the expected (one standard deviation) move (in actual dollar value) that is

priced into the options for the particular futures instrument that we are trading (in

this case the /ZB). In other words, the bands serve to show how far the /ZB is expected

to move in each direction during the Cycle. These bands very often serve as turning

points for the underlying futures – in other words, support and resistance – and great

places to build positions and/or take profits. Let’s continue the example from above,

Two things to notice. First, the Volatility Bands for the /ZB (in red) and the /UB (in

green) have been added. Again, these bands represent the amount of movement

priced into the /ZB and /UB options. Second, the /ZB consistently extends to the area

around these bands and then turns. What a great place to enter and exit trades!

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 approach will fit any timeframe and any

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trade structure using futures or options

on futures. Always paper trade to gain

a complete understanding of the set-up

and trade management before risking

your hard-earned money. Trade sizing

and position management are more

critical to your success getting the

perfect entry!

Stacy Brovitz, a Chartered

Financial Analyst (CFA)

designation holder, is

a long term Masters

in Trading client and

successful, seasoned investor. He has worked

Just look at the entry and exit points
on Wall Street, owned, operated and managed
represented by the white circles – as an multinational manufacturing companies and

example, the first circle is a great place to is very active in his community. He regularly

provides insight by writing for Masters in

enter a short position, exiting profitably at
Trading's Insights blog.
the second circle. These patterns repeat

over and over again – on every timeframe!

The Volatility Bands present a unique

approach to trading futures, exclusively

developed by Masters In Trading. It relies

on the volatility priced into the options

on futures to identify trading zones. This

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 Join our Monthly Futures Membership and
Get Access to the Futures EDGE
Web-Based Charting System
Learn to trade Futures like the Pros. In global markets, every
trade is pushing or pulling on other correlated trades.
Because of this, traders need to evaluate opportunity using
relative value.

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