Futures Trading:

Technical Analysis
for Beginners
Table of Contents
Part I: Getting Started in Futures Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Futures 101: Understanding the Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Part II: Growing as a Futures Trader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Intermediate Concepts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Part III: Keys to Mastering Chart Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Introduction to Charting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Advanced Analytics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Part IV: Broker-Assisted vs. Self-Directed Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Which Is Best for You? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Support Available from Daniels Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Futures Trading: Technical Analysis for Beginners 2

Part I:
Getting Started in Futures Trading
Since the rise of the digital marketplace in the late 20th century, many active traders
have become fascinated by the potential of futures. Advancing technology has
lowered once-impenetrable barriers to entry―you no longer need a seat at the
exchange and a six-figure brokerage account to trade. The only requirements are
smarts, courage, and some venture capital.

So what makes the futures market the go-to venue for so many professional and
novice traders? Simply put, participants enjoy access to a vast array of listings, an
affordable cost structure, and the ability to engage the market remotely. While there
is inherent risk to trading derivatives, due to the flexible and budget-friendly nature
of these exciting products, futures are a promising way to achieve financial goals.

Futures Trading: Technical Analysis for Beginners 3

Futures 101: Understanding
the Basics
WHAT IS A TRADER’S JOB?
Being an active futures trader is truly unique.
If you’re a full-time trader—or thinking about
becoming a full-time trader—the reality is that
there’s no time clock to punch, health insurance, or
401(k). There’s only risk, reward, profit, and loss.
Success is determined on a day-to-day basis, with
the brokerage account balance being the ultimate
judge of competency. If you’re a part-time trader,
you’re aiming to maximize your returns in the time
In practice, a trader’s
you’ve set aside for trading.
job description is
In practice, a trader’s job description is fairly fairly straightforward:
straightforward: Buy and sell futures contracts in
Buy and sell futures
an attempt to make money. Sounds easy, right?
Well, as the old saying goes, futures trading may contracts in an attempt
be the “hardest way to make an easy buck.” to make money.
Freedom is one of the principal factors that attracts
people to futures markets. As an active trader, you
have the ability to set your own schedule, make
your own salary, and essentially be your own
boss. However, don’t be misled. Most successful
traders put in long hours analyzing, trading, and
evaluating performance. A trader’s work is never
done. If you’re going to pursue a life in the futures
markets, success requires dedication, discipline,
and desire. Anyone without these characteristics is
likely to have a very short-lived trading career.

Futures Trading: Technical Analysis for Beginners 4

BUYING VS. SELLING
A futures contract is a binding agreement to purchase or sell a specific quantity of
an asset, at a stated price, on a forthcoming date in time. When a futures trader
executes a trade, the buying and selling of contracts is required.

Perhaps the largest advantage to trading futures is that you can profit from either
buying or selling contracts. Here’s how that’s accomplished:

Selling: If you believe a product’s price is going to fall, then executing a

sell order will position the account to profit from decreasing value. This is
known as shorting the market.

Buying: Conversely, if you anticipate rising prices, then buying the

appropriate contract, or going long the market, is the ideal course
of action.

The ability to capitalize on both rising and falling markets is a leading benefit of
trading futures. You’re not limited to the traditional “buying low and selling high”
mantra of equities markets, where you enter a trade by buying; “selling high and
buying low” is an additional way to secure market share in futures markets.

Futures Trading: Technical Analysis for Beginners 5

WHAT IS THE TRADING PLATFORM?
Advancing market-related technology has fueled a quantum leap in the way traders
interact with the market. For brokers and traders, paper fill slips and telephone calls
have become less common. In the modern futures trade, accessing the market via a
low-latency digital platform is an increasingly popular option for most traders.

In online futures trading, the platform is your window to the marketplace. Its
functionality allows for the real-time sending and receiving of data with the
exchange. Accordingly, the platform facilitates order placement, technical analysis,
and trade execution. Without a robust software trading suite, you shouldn’t consider
interacting with the digital marketplace on your own.

Its functionality
allows for the real-
time sending and
receiving of data with
the exchange.

Futures Trading: Technical Analysis for Beginners 6

Part II:
Growing as a Futures Trader
The development of winning futures strategies never ends. It’s a constant process,
involving ongoing education, relentless market study, and constant performance
evaluations. In order to achieve your long-term market-related goals, it’s imperative
that you give the proper attention to growing as a futures trader.

Intermediate Concepts
WHAT IS FUTURES MARGIN TRADING?
Margin trading is the use of broker-extended earnest money for the buying and
selling of futures contracts. This money allows the trader to apply financial leverage
to account balances with only a fraction of a contract’s aggregate value. In doing
so, positions may be taken and held in the open market with minimal capital.
While margin trading can enhance purchasing power, it can also increase the risk
associated with trading futures and result in margin calls - a broker’s request for the
deposit of additional funds to bring the account above the initial or maintenance.

In order to trade on margin, the trader makes a good-faith deposit that meets
specific guidelines known as margin requirements. Once the necessary funds are
secured in the brokerage account, the trader is then ready to begin leveraging
the deposit.

There are two basic types of margin: intraday and maintenance. Intraday margins
allow for the short-term trading of futures, with all positions being exited by the daily
close. Maintenance margins give traders the ability to hold open positions through
the daily or weekly market close. Maintenance margins are more capital-intensive
due to the higher degree of assumed risk.

Futures Trading: Technical Analysis for Beginners 7

UNDERSTANDING CONTRACT SPECIFICATIONS
Futures contracts are standardized financial instruments. This means that each and
every contract adheres to a set of concrete specifications. Futures contract specs
clearly define several important characteristics of the individual product:

SPECIFICATION DEFINITION

Quantity Amount of the underlying asset

Denomination Price quotation of the contract

Tick Value Monetary worth of a single tick

Expiration Calendar date when the contract is

no longer tradable

Settlement Procedure for settling expired contracts

Taking the time to review a contract’s specifications is an essential part of

competent trading. If you don’t know the specs, you shouldn’t be trading
the product!

Futures Trading: Technical Analysis for Beginners 8

READING QUOTES
A futures quote is a statement pertaining to
the current market price of a specific product.
Quotes originate at the exchange and are
typically accessed via software trading
platform, financial news outlet, or
brokerage service.

Depending upon the source, be it a pricing

chart or ticker tape, a futures quote may
include several vital pieces of information:

Symbol: Each futures contract is assigned

A futures quote is a
a unique symbol that distinguishes the
asset class, calendar month, and year of statement pertaining
the offering. to the current
Open: The periodic open is the first price market price of a
at which a contract was traded. This price specific product.
point may be determined according to a
wide variety of durations, from minutes
to months.

High: This marks the upper extreme of the

periodic trading range.

Low: This marks the lower extreme of the

periodic trading range.

Close: In contrast to the open, the periodic

close of a contract is the final price at
which it was traded.

Futures Trading: Technical Analysis for Beginners 9

In addition to actual price points, quotes frequently include such market-related
information as open interest and volume. Although these data sets aren’t integral to
order execution, they often have strategic value.

It’s important to remember that futures quotes are capable of changing rapidly
and quickly becoming obsolete. Due to their time-sensitive nature, it’s essential to
reference a live data feed frequently to stay abreast of shifting market conditions.

USING THE FUTURES CALCULATOR

Any time you open a new position in the market, you put risk capital in harm’s way.
Gains and losses are realized on a tick-by-tick basis, constantly evolving as the
process of price discovery unfolds. Maintaining a firm grasp on profit, loss, applied
leverage, and other elements in live market conditions can be a challenge. One
simple way to stay on top of risk and reward is by using a futures calculator.

A futures calculator quickly derives the profit and loss (P&L) for a given trade
by taking into account entry price, exit price, number of contracts, and market
type. After inputting this data into a user-friendly interface, the futures calculator
automatically figures P&L in terms of ticks and currency.

Quotes originate at
the exchange and are
typically accessed
via software trading
platform, financial
news outlet, or
brokerage service.

Futures Trading: Technical Analysis for Beginners 10

Part III:
Keys to Mastering Chart Analysis
Introduction to Charting
PHILOSOPHY OF TECHNICAL ANALYSIS
Technical analysis is the study of past and current market behavior in an attempt to
accurately project future tendencies of price. It disregards the study of fundamentals
and the idea of intrinsic value in favor of focusing on price in isolation. For pure
technicians, price action is the only market-related element used to craft
trading decisions.

The origins of technical analysis are commonly attributed to Charles Dow and the
initial incarnation of Dow theory in the late 1800s. Although the study of price has
come a long way since Dow’s era, it still relies on accurate data sets and has grown
increasingly dependent on the pricing chart.

BUILDING AN EFFECTIVE PRICING CHART

If you’ve spent any time at all around the financial markets, then chances are you’ve
seen a pricing chart. A pricing chart is a visual rendering of a derivative’s price action
over a distinct period. They come in many types, including such popular choices as
candlestick, open high low close (OHLC), volume, and line.

In the contemporary marketplace, the pricing chart is the go-to reference for
technical study. It defines where a market is, was, and may be going.

Futures Trading: Technical Analysis for Beginners 11

In order to optimize performance, it is vital to construct a pricing chart with these
characteristics:

User-friendly: A good chart should be easy to read and use. Unnecessary

complexities are confusing and can waste valuable time.

Strategic: The pricing chart must be applicable to your adopted analytic

and trading methodologies. For example, if your game plan is based on
pattern recognition, then a line chart simply won’t do.

Concise: Strong charts are clutter-free. All extraneous information and

indicators are eliminated to create a clear, concise picture of
the marketplace.

Futures Trading: Technical Analysis for Beginners 12

Advanced Analytics
PATTERNS AND SETUPS
A chart pattern is a recognizable formation
constructed by specific moves in price. Patterns
may be discerned by many tools, including trend
lines, visual cues, and obscure algorithms. However,
no matter how complex a pattern may be, it
indicates that a unique set of market conditions is
present and a trading opportunity may be on the
immediate horizon.

Here are the two primary classifications of chart

patterns and their essential functions: Patterns may be
Reversal: A reversal pattern signals the end of a
discerned by many
prevailing trend and a pending change in price’s tools, including
direction. These patterns can be valuable tools trend lines, visual
for identifying the periodic highs and lows of a
market. Double tops/bottoms, bullish/bearish
cues, and obscure
engulfing patterns, and morning/evening stars algorithms.
are a few examples of reversal patterns.

Continuation: Continuation patterns suggest

that a prevailing trend is in a “pause” and further
extension is probable. Ascending/descending
triangles, flags, and pennants are three popular
illustrations of continuation patterns.

Building trading strategies based upon chart

patterns is one way in which many professional
traders engage the markets. Patterns may be
used to determine market entry and exit, as well
as to provide guidance for the management of
open positions.

Futures Trading: Technical Analysis for Beginners 13

APPLYING INDICATORS
A technical indicator is a tool that traders use to interpret price action. Indicators
help place seemingly random moves in price into a workable context, thus
contributing to the formation of a comprehensive trading plan.

Indicators come in many varieties, from those available in the public domain to
proprietary pay-for-play options. Here are a few of the most popular public
domain indicators:

CLASSIFICATION TOOLS

Trend Fibonacci Retracements, MACD

Momentum RSI, Stochastics

Oscillators

Volatility Bollinger Bands

Volume Open Interest, Market Profile

The beauty of indicators is that

you may routinely apply them
using a software trading platform. Indicators help place
In practice, these tools are
seemingly random moves
commonly used as chart overlays,
in designated windows, or in in price into a workable
numerical formats. context, thus contributing
to the formation of a
comprehensive trading plan.

Futures Trading: Technical Analysis for Beginners 14

Part IV:
Broker-Assisted vs. Self-Directed Trading
Which Is Best for You?
Without a doubt, one of the most
important decisions you will make in
your trading career is choosing a broker.
A solid brokerage firm must be legally
upstanding and have a strong technological
infrastructure, a positive reputation, and
a significant track record in the markets.
Aside from these vital components, your
ideal broker needs to offer services that
complement your unique situation.
CONDUCTING A PERSONAL INVENTORY
When beginning a venture of any kind, it’s
a good idea to know where you are going
before attempting to get there. Conducting
a personal inventory is an excellent way
of aligning resources to your goals and
determining exactly what type of brokerage
service you need.
Questions
to Ask Your
Broker
Selecting a broker is the all-important
first step in your venture into the
marketplace. Unfortunately, not all
futures brokers are equal. Here are a
few key questions to ask a prospective
broker to determine integrity, legality,
and competency:
How long has your firm been
in business?
Are you CFTC- and NFA-licensed
and compliant?
What steps do you take to ensure the
safety of customer funds?

What is your fee and commission

structure for futures?

Do you provide clients access to

dedicated technical and
operational support?

Futures Trading: Technical Analysis for Beginners 15

A complete personal inventory should address the following areas:

Available Resources: Time and capital are two ingredients that influence
how, where, and what you trade.

Objectives: Financial goals are a key part of choosing a broker. Whether

you’re interested in capital appreciation, risk management, or wealth
preservation will largely dictate the type of broker needed for the job.

Expertise: Levels of experience and expertise loom large in broker

selection. For beginners, full-service brokers are ideal because they aid
in trader development. Conversely, market veterans are more qualified to
operate in a self-directed capacity.

Once you perform an honest self-inventory, you’ll have a better idea of what type
of brokerage service and features are necessary for success. If time and expertise
are lacking, broker-assisted options may be ideal. If your objective is to trade
professionally, full-time, then self-directed services are likely a better choice. In either
instance, you can more effectively identify the most suitable course of action after
conducting a personal inventory.

Futures Trading: Technical Analysis for Beginners 16

HOW A BROKER CAN HELP YOUR TRADING
A competent broker is a valuable asset, capable of improving a trader’s performance
in a variety of ways. They’re your partner in the marketplace, providing high-quality
market access as well as timely guidance. Here are a few areas where a broker can
help your trading:

Low-latency trade execution

Strategic advice

Experienced market insight

For these and other reasons, a broker can be a positive influence on trader
development as well as day-to-day operations.

CHOOSING THE CORRECT SERVICE SUITE

After conducting the personal inventory and evaluating brokerage options,
it’s time to select a service suite. So which is best? Self-directed or broker-assisted?

The answer to that question is rooted in your individual situation. Here is a quick look
at which type may be best for you:

Self-Directed: Self-directed traders are people who have extensive market

experience and are technologically savvy. These folks usually don’t need personal
attention from a broker, only top-notch trade execution at an affordable price.

Broker-Assisted: Typically, broker-assisted traders are individuals who have

limited time and/or market experience. They don’t mind a somewhat larger fee
structure in return for professional advice, support, and guidance.

In truth, there’s no correct answer when it comes to choosing whether to be a self-

directed or broker-assisted trader―it’s all about comfort and preferences. One of the
premier benefits of futures is that both service suites are available. If you don’t like
one, you can easily give the other a try!

Futures Trading: Technical Analysis for Beginners 17

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