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Best Futures Trading Indicators

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Futures trading, especially short-term trading based on technical signals, can seem overwhelming if you have no guidance. Trading indicators are meant to change that. When used properly, indicators provide potentially illuminating information that may help you find a winning perspective in the market.

There are 4 main types of trading indicators:

  • Trend: Tells you the strength and direction of price movement
  • Momentum: Tells you the rate of change of price movement
  • Volatility: A directionless measure of the rate of price movement
  • Volume: Measures the strength of a trend and confirms its direction

Indicators also fall into 2 categories:

  • Leading: Gives signals when a market movement is about to start
  • Lagging: Gives signals after a market movement has started and confirms it

We’ll talk about some of the best futures trading indicators and how you can use them for a better chance at successful trading.

Best Futures Trading Indicators

Many traders use multiple indicators at once, all tracking a different aspect of the market. In general, you want to choose trading indicators that complement each other. Let’s take a look at some of the most commonly used indicators and what they do.

Moving Averages

Moving averages (MAs) are meant to smooth out price data and make trends easier to spot. Moving averages evolve over time since whenever a new piece of data is added, the first piece of data is removed so that the number of data points in the average remains constant.

You can set your moving average to cover price data from different periods. This is the origin of terms you may have seen — 10-day moving average, 30-day MA and the period you pick is very important to consider. In general, the shorter you set your period, the more useful your moving average will be for short-term trading. Longer periods are usually meant for longer-term traders because the average is taking earlier prices into account.

One of the most common uses of the moving average is the crossover strategy. Traders will pull up a short-period moving average like the 10-day MA with the 50-day MA on a chart. As the lines cross over and under each other, you can deduce certain things about the market. For instance, if the 5-day MA crosses over the 200-day MA, many traders interpret that as a bullish signal.

There are many types of moving averages, all set up to indicate different things to you. Here are some of the most well known.

  • Simple moving average (SMA): This is an arithmetic moving average calculated over a predetermined period that is used on its own and in the calculation of many other moving averages.
  • Exponential moving average (EMA): An average of price points over a predetermined period that puts more weight on more recent prices. The result is a more responsive short-term movement that can help a short-term trader identify a trend more quickly than the SMA.
  • Triangular moving average (TMA): The TMA is very similar to the SMA, but it is smoothed using the average of all SMA values. The result is an indicator that does not react as quickly to new information. This is useful for swing traders and fundamental traders who care about long-term trends over short-term price swings.

Fibonacci Retracements

If you are trading in more volatile waters, Fibonacci retracements can be useful in identifying and monitoring price pullbacks. In many cases, short-term price movements may pull back within long-term trends, giving the astute trader the opportunity to make money in the market.

When you pull up your Fibonacci retracement indicator, you will normally want to measure the distance between an extreme high and an extreme low in a trend. When you pull the tool into place, you should notice lines marking the Fibonacci ratios 23.6%, 38.2%, 50%, 61.8% and 100%. In practice, a breach of a particular Fibonacci retracement level is generally used to signal that the market will likely continue on to the next retracement level if the breakout is sustained. Many traders believe they must appear as important markers in the stock market as well.

Many traders begin their assessment with Fibonacci, combining an analysis of a trend’s retracement levels with other analysis around support and resistance levels. For instance, if a trend falls to the 61.8% line which also coincides with support for the trend, this may indicate true support for that price level.

Parabolic Stop and Reverse (PSAR)

The PSAR is a unique sort of indicator that creates a parabolic curve of dots on your chart. These dots will either appear above or below the price of your asset based on its movement. The placement of the dots ideally changes when the trend changes.

For instance, if the PSAR is above your price and switches below it, then it is indicating bullish movement in the price action. This may correspond with a buying opportunity, though not always. The opposite is also true. If the dots start below and move above, this is meant to indicate bearish movement and a possible sell opportunity. PSAR is used to help traders easily make sense of volatile market situations. This indicator does lag somewhat, so it may be less useful for catching the very beginning of a trend.

Best Brokers for Futures

If you plan on trading futures profitably, you need a reputable and competitive futures broker. Your choice of broker will affect the fees you pay for trades, the assets you have access to and many other important things. Your broker may also be the link to your trading software, but not always.

Take the time to look through and test the feature sets of well known, well-regulated brokers before committing yourself to one.

Best For
Advanced Futures Trading
Overall Rating
get started securely through NinjaTrader’s website
Best For
Advanced Futures Trading
N/A
1 Minute Review

NinjaTrader is a powerful derivatives trading platform specializing in futures, forex and options. The platform has a number of unique trading tools. A free version does exist without the extra goodies provided by Trader + and OrderFlow + but users can still break down charts, backtest strategies and trade without upfront payment. NinjaTrader hosts its own brokerage services but users have their choice of several different brokerage options. Accounts have minimums depending on the securities traded and commissions vary depending on the version of the platform. Advanced derivatives traders will have endless fun with the platform’s mighty array of tools and analyzers.

The free version, which is included with all brokerage accounts is a great starting platform for new traders without the financial commitment. As you grow in your trading and are ready for more tools and functionality, you can add more complexity.

Best For
  • Futures Traders
  • Traders looking for 24/7 action
  • Advanced Traders
Pros
  • Powerful analysis tools
  • Free download and simulated trading
  • Open source trading apps to enhance experience
Cons
  • Can only trade derivatives like futures and options
Best For
Futures Trading
Overall Rating
Get started securely through TradeStation’s website
Best For
Futures Trading
N/A
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Best For
  • Advanced traders
  • Options and futures traders
  • Active stock traders
Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Best For
Intermediate Futures Trading
Overall Rating
Get started securely through Tradovate’s website

Examples of Leading Indicators

If you are a short-term trader in the futures market, leading indicators will likely be very important to you. Because you are not staying in trades very long, you need to know information that allows you to anticipate trends. Here are some of the best leading indicators to study. Although they are not infallible, they may provide you with an alert to focus your attention more closely on a particular set up.

  • Relative strength index (RSI): Mainly used to identify overbought and oversold markets
  • On balance volume (OBV): Focuses on changes in trading volume
  • Stochastic oscillator: Momentum indicator that can show when the market is oversold or overbought and its directional momentum is slowing down

Analyze Futures Markets

If you ask 5 market traders about their favorite indicators, you will get 6 different answers. All 5 will tell you, however, that no single indicator is a magic bullet. Good technical analysis usually involves taking relevant information from several appropriate indicators. Some traders also engage in lagging indicators to validate leading indicators.

If you are just beginning your trading journey, it is important that you first familiarize yourself with the limitations of your favored indicators. Once you find indicators you like, the second step is to find out what they can’t do. From here, you can begin to combine indicators to shore up weaknesses for a more sophisticated trading strategy.

The Best Indicator of Your Future Is You

Regardless of the types of futures that you trade or the indicators that you use, your trading strategy determines your success more than anything. It is easy to rely too heavily on trading indicators, which can freeze you into analysis paralysis or goad you into false movements.

Before filling up your screen with indicators, make sure that you have identified your overarching hypothesis for the market. Keep data on the trading strategies that work for you. Once you have a core trading philosophy, you should have a much easier time choosing the indicators that will inform your trades.

Bookmark the Benzinga website for up to date information on the latest indicators and everything else you need to trade confidently in the futures market.

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Get started with AMP Global today.