Technical analysis and different future contracts

[Mr.Richter]

Hi folks,

because I'm starting to trade futures instead of ETFs now a question arouse in my mind:

Because I want to stay longer in the trade I tend to buy a later expiring contract (i.e. September). But I think most people are trading and looking at the current contract. With some futures I've got a long signal from the current contract but not (yet?) from the later contract or vice versa.
How do you handle this?

 

[Scataphagos]

Hi folks,

because I'm starting to trade futures instead of ETFs now a question arouse in my mind:

Because I want to stay longer in the trade I tend to buy a later expiring contract (i.e. September). But I think most people are trading and looking at the current contract. With some futures I've got a long signal from the current contract but not (yet?) from the later contract or vice versa.
How do you handle this?

Trade only the most active contract... the front month. When time expires, trade the next contract. Nearly all of the liquidity is in the front month.

 

[CannonTrading_Ilan]

IMO best to go with the front month/most liquid and rollover when needed. Some markets have different insights and traits than others and some like crude oil you can already go a few months forward with good volume.
My personal experience and preference is to get the signal in the front month and/or use what we call active continuation chart.

 

[Mr.Richter]

Thanks for the quick answers!
I was avoiding rolling over my trade because I thought that I'll be losing with each rollover some profits from the position - that's why I was looking at the later contracts as well. But yeah, they are, of course, priced differently...

 

[CannonTrading_Ilan]

Hope the following helps a bit more, this is with the help of my colleague John Thorpe:

Future expectations are priced into deferred months and front months. Some futures contracts are called carrying charge markets like the precious metals where the futures prices of deferred contracts reflect current front month + the cost of storage and insurance. Grains are Seasonal markets, they have old crop and new crop contracts that have expectations based on future supply and demand built into markets. Financial futures contracts may offer yet a different reason for pricing deferred contracts. Stock indices are a prime example of why trading the front months then rolling to the next quarter near expiration is best. How you determine your strategy isn't always about where the volume is, it depends on the contracts you are trading the supply and demand scenarios for the products and whether the market is in Contango or Normal Backwardation.

 

[easymon1]

Thanks for the quick answers!
I was avoiding rolling over my trade because I thought that I'll be losing with each rollover some profits from the position - that's why I was looking at the later contracts as well. But yeah, they are, of course, priced differently...

What products are you paying attention to?

 

[Mr.Richter]

What products are you paying attention to?

Different products. Among others ZC, CT and RBOB.

 

[mervyn]

https://www.elitetrader.com/et/threads/whats-the-logic-of-spreading-es-futures.371896/#post-5739591

Refer to this thread. When roll, you are not losing any profits, the spread is a constant, otherwise also will arb the trade. Trade the front month because it is most liquid, futures are mom so all realized and unrealized profits will be taxed anyway.

 

[easymon1]

https://www.elitetrader.com/et/threads/whats-the-logic-of-spreading-es-futures.371896/#post-5739591

Refer to this thread. When roll, you are not losing any profits, the spread is a constant, otherwise also will arb the trade. Trade the front month because it is most liquid, futures are mom so all realized and unrealized profits will be taxed anyway.

That sounds well and good.
Looks to me like our trader is entering to hold for months and maybe months and months.
To trade ZC for example, the Dec ZC contract has good volume and limit orders can get a trade on with relative precision all things considered, e.g. a 3-5 month hold. Downshifting to a 30minute chart provides liquidity enough for a trader with a method to work that sized chart.

RBOB and Cotton? What say you richter?

 

[Mr.Richter]

Looks to me like our trader is entering to hold for months and maybe months and months.

This is exactly my plan.

RBOB and CT have both created in the current contract regarding my technicals a bullish signal. But I wanted to buy in CT rather the Jul contract which looks different and has no bullish signal yet. Regarding RBOB the later expiring contracts have a far higher price. So I probably stay on the sideline in this instrument.