Trades Most Futures Traders Overlook

Corn. Soybeans. Gold. Silver. Copper. Crude Oil. Natural Gas.

Mention the word “futures” and many traders’ immediate thoughts run to day trading and index E-mini markets. No doubt they’re most popular with daytraders in particular, and index futures markets are obviously amongst the most heavily traded of all. But that doesn’t make them the only viable choice, and in many cases not even the best choice for most traders.

Enormous Profit Potential

Various markets somewhere are always trending. Swing traders watching a basket of markets are open to opportunity wherever it appears. If oils, precious metals or grains are breaking out and starting bull or bear runs… astute swing traders stand ready to ride those waves. For example, currency markets are almost always making big directional swings and sometimes huge extended trends. Just one example (of countless) is the recent period from July through October 2008 in the EURO/USD currency market. Eurodollars against the USD trended lower from 1.59 peak high to 1.23 swing low… a directional move of 26 cents or 2,600 “pips” at 100 pips to 1 cent underlying measurement. For the sake of discussion, each pip in the EUR/USD futures market is worth $12.50 per 6E FX contract on that pair. The overall trend move from high to low covered a value range of $32,500 per each EUR/USD futures contract held short.

I’m not saying anyone on earth would have or even could have held through that entire trend move. Maybe not even a quarter of it. But can you see potential for profits trading from the short side (on smaller charts) and holding each trade for some distance lower? The range is even bigger in GBP/USD, and of course all other major currency pairs enjoyed similar macro-trend moves as well.

Dwarfed By Oil

It’s safe to say that everyone who pumps gas or even walks past a television set every now and then was aware of crude oil prices going sky high in 2008. The unbelievable price mark of $147 per barrel was hit before a sharp reversal of fortune ensued. In a mere fraction of the time it took for oil to climb that high, a cascade lower reached troughs of $30s per barrel since. That watershed drop of more than -$100 per barrel of crude oil prices out in the futures market at $1,000 per CL futures contract on every $1 per barrel change in price. Quick math using available fingers and toes here tells us that would be a trend move lower of more than $100,000 USD per each individual, single, lone crude oil futures contract.

Again, no one on earth would be expected to catch all, most or even half of that breath-taking swing in price. Still it’s pretty safe to say that anyone could have gotten short somewhere, held on for a little while and enjoyed profit to risk ratios of 10×1 or greater.

Day-Trade Well

Currency futures (and spot FX), crude oil futures, gold futures, corn and soybean futures are rapidly growing in popularity with serious day traders. Each market is fully electronic, trades with sufficient volume and liquidity for any retail trader’s use. They all have various hours for pit-session trading, different economic reports that affect price action but overall trade in similar fashion to E-mini index markets. In some cases the commodity futures markets trade more technically pure than equity markets do, but that’s a topic for some other discussion. Suffice it to say that each of these symbols are growing in volume and open interest all the time, which has captured the interest of many professional day traders.

If you haven’t ever looked at those different markets, you owe it to yourself for doing so right now. Those mind-boggling directional trends each market has made in the past couple of years are bound to continue. If they’re making big trend moves up or down, doesn’t it make sense that much of that distance will be covered intraday? Would you like to take part in that action? It’s still happening right now and will continue to do so whether you’re on board for the big rides or not.

Chart #1: Corn Futures – 04/14/2009

Corn Futures chart

Corn futures trade on the eCBOT around the clock, pit session runs a genteel 10:30am est open through 2:00 pm est close. Who wouldn’t love a 3.5 hour workday? Plenty of time left for early or later tee times on either side of that window this summer. In this example C futures opened around the 389 price level and rallied to 399 cents per bushel in pretty explosive fashion. That move represents +$50 per each cent, or ten cents x $50 for a $500 per corn futures contract swing.

Obviously they don’t all happen that fast, straight or tall… but corn futures usually trade smoother and more deliberate than stock index futures ever dreamt of. They have their moments just like any market does, but by & large can be traded in a more relaxed manner with less fear of whipsaw gyrations across every inch of the tape.

Chart #2: Soybean Futures 04/14/2009

Soybean Futures chart

Soybean futures are the rangy, volatile grain futures. Swing low from 1026 covered the same ten-cent range to 1036 in this example, but beans often run twice the distance as corn. They are a little bit bumpier on the charts for that reason, but constant-bar settings like 200 tick charts or similar help smooth the picture out.

Chart #3: Corn Futures 04/09/2009

Corn Futures chart2

Another trend move lower off the open offered +5 cent gains in corn or +$250 per contract short. Same tick values as ES, similar price ranges, smoother & more trendy movement on average by comparison. A distinct lack of computer programs (bots) leave grain futures unfettered to make their trends up or down the chart without incessant program-slam surge moves interrupting that process.

Chart #4: Soybean Futures 04/09/2009

Soybean Futures chart2

Another example where the volatile dynamics of soybean futures offer pretty big intraday profit potential in classic trend session fashion. Beans broke early in the morning and covered a 15-cent trend – pause – trend continuation move. At $50 per cent, this one equals a +15pt ES profit captured by relative comparison.

Popular Potential Ahead

Past the aftermath of a global stock market collapse, many investors and traders will be leery of jumping right back into the water. That purported massive amounts of money on the sidelines we hear about may stay right where it is for quite awhile… on the sidelines and out of the stock market. The recent market rally off early March lows has gone up with contracting volume and overnight gaps & rallies that mean nothing substantial. That in itself tells us support below is honeycombed and thin. Where are the confident investors?

Perhaps many of them are looking elsewhere from stock markets. Interest in ETFs and ishares that trade commodity markets and/or physical goods has grown dramatically. The advent of pure electronic trading for a growing list of traditional commodity futures markets has attracted much more attention there. Yesterday’s E-mini S&P 500 trader is now today’s gold-futures or soybean futures trader. Should volume = volatility contract in the E-minis and remain that way for an extended period of time, expect those futures markets to shrink at the expense of other commodity symbols.

When the U.S. economy and likewise other economies improve, we can count on a resurgence of commodity market bullish trends. Precious metals, industrial metals, building materials and petroleum fuels must go up in price. Following closely on those heels will be food commodity markets like grains, meats, coffee, sugar, cocoa and other “softs” like cotton. One thing about commodity markets underlying consumer staples and goods: when they break out of bases and trend, the trend moves are long and extended. Unlike stock index markets which gyrate, consolidate, chop and churn for a myriad of reasons unrelated to consumption, physical demand of limited supply with commodities creates significant bull runs.

After witnessing the unthinkable with JP Morgan failure, Citibank (and others) a penny stock, General Motors on the brink of insolvency and persistent fear there is much more to come, the average investor may start to shun stocks in traditional companies for something backed by hard goods. We should expect more ETFs and ishares created to meet this probable demand… a shift towards commodity-backed stocks in the future. That type of probable interest will only serve to add volume and volatility to commodity markets if expectations come to pass.


Many traders remain fixated on E-mini markets alone for no other reason than lack of exposure to different futures markets. It’s nigh time for working other markets alongside, for many of us. Variety in trading non-correlated or semi-correlated markets gives us some diversity of results, which helps smooth out an equity curve. When one market is dull and the other active, presents opportunity somewhere more often than not. We’ll spend some time here in the medium future covering various electronic-traded futures markets in detail. Meanwhile, traders who spend some time studying what else is out there might quickly discover an excellent choice of symbol(s) to pair alongside what’s already working well for them.

Austin Passamonte is a full-time professional trader who specializes in E-mini stock index futures and commodity markets. Mr. Passamonte’s trading approach uses proprietary chart patterns found on an intraday basis. Austin trades privately in the Finger Lakes region of New York. Click here to visit CoiledMarkets

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