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Hello Wayne,

Thanks, you raised some really good points about futures.

Quite true, it is a minefield, and the effects of “contango” (where longer dated futures are priced higher than nearer dated futures) and “backwardation” (where longer dated futures are priced lower than nearer dated futures) certainly add an element of complexity to the analysis process.

As you can imagine there are a range of ways of approaching various aspects peculiar to futures, and I don’t intend to expand on all the facets here since the focus here is on chart analysis.

The way I approach this is to either analyse a specific contract (which is why I posted up the December 2006 chart as an example), or accept the composite nature of the spot chart (much like the way stock indexes are weighted).

I would argue that the nature of market cycles underlying spot markets are evident, and that the analysis I am using aims to fathom these cycles irrespective of the quirks of futures markets.

By being aware of aspects such as “backwardation” and “contango”, it is possible to take these factors into account and adjust accordingly, which is why if you are trading spot markets with CFDs you really need to understand the mechanics.

If you ask me, I’d say analyse both the spot and the various contracts you think are relevant to get the best picture possible. Take away wisdom: research the $#@% out of everything!

Regards

Magdoran

P.S. I wasn’t going to raise terms like “backwardation” and “contango”, but what the hell, this is after all a teaching thread! Mag

<blockquote data-quote="Magdoran" data-source="post: 87146" data-attributes="member: 3955">Hello Wayne,Thanks, you raised some really good points about futures.Quite true, it is a minefield, and the effects of “contango” (where longer dated futures are priced higher than nearer dated futures) and “backwardation” (where longer dated futures are priced lower than nearer dated futures) certainly add an element of complexity to the analysis process.As you can imagine there are a range of ways of approaching various aspects peculiar to futures, and I don’t intend to expand on all the facets here since the focus here is on chart analysis.The way I approach this is to either analyse a specific contract (which is why I posted up the December 2006 chart as an example), or accept the composite nature of the spot chart (much like the way stock indexes are weighted).&nbsp; I would argue that the nature of market cycles underlying spot markets are evident, and that the analysis I am using aims to fathom these cycles irrespective of the quirks of futures markets.&nbsp; By being aware of aspects such as “backwardation” and “contango”, it is possible to take these factors into account and adjust accordingly, which is why if you are trading spot markets with CFDs you really need to understand the mechanics.If you ask me, I’d say analyse both the spot and the various contracts you think are relevant to get the best picture possible.&nbsp; Take away wisdom:&nbsp; research the $#@% out of everything!RegardsMagdoranP.S. I wasn’t going to raise terms like “backwardation” and “contango”, but what the hell, this is after all a teaching thread!&nbsp; Mag</blockquote>

[QUOTE="Magdoran, post: 87146, member: 3955"] Hello Wayne, Thanks, you raised some really good points about futures. Quite true, it is a minefield, and the effects of “contango” (where longer dated futures are priced higher than nearer dated futures) and “backwardation” (where longer dated futures are priced lower than nearer dated futures) certainly add an element of complexity to the analysis process. As you can imagine there are a range of ways of approaching various aspects peculiar to futures, and I don’t intend to expand on all the facets here since the focus here is on chart analysis. The way I approach this is to either analyse a specific contract (which is why I posted up the December 2006 chart as an example), or accept the composite nature of the spot chart (much like the way stock indexes are weighted). I would argue that the nature of market cycles underlying spot markets are evident, and that the analysis I am using aims to fathom these cycles irrespective of the quirks of futures markets. By being aware of aspects such as “backwardation” and “contango”, it is possible to take these factors into account and adjust accordingly, which is why if you are trading spot markets with CFDs you really need to understand the mechanics. If you ask me, I’d say analyse both the spot and the various contracts you think are relevant to get the best picture possible. Take away wisdom: research the $#@% out of everything! Regards Magdoran P.S. I wasn’t going to raise terms like “backwardation” and “contango”, but what the hell, this is after all a teaching thread! Mag [/QUOTE]

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