Smiling proudly at the stock futures exchange, smashing Wall Street! Hello everyone, welcome to the Technology Paradise, I am Lao Zou, the owner of the park. Today, let's explain a brief comparison of technical analysis in the application of stock market and futures market.
People often ask whether the usage of technical analysis in the stock market and the futures market is the same? The answer is: both the same and not the same. Because the basic principles of the stock market and the futures market are common, the basic tools used are the same, such as candlestick charts, point and figure charts, price patterns, trading volume, trend lines, moving averages, and oscillators. As long as you learn to apply these basic knowledge in one market, you will be able to adapt to another market with ease.
Of course, there are essential differences between the stock market and the futures market. To say that the difference in technical analysis between them, that is, the difference in the general sense caused by the innate characteristics of the two markets, mainly includes the following points:
1. The price tag method.
The pricing method of commodities is much more complicated than that of stocks. Each commodity is priced in a specific unit and the most basic range of price increase or decrease is established. For example, the quotation method in the grain market is a few cents per bushel, gold and silver is a few dollars per ounce, and foreign exchange is a basic point and so on. Investors must understand the specific situation of each market: which exchange is listed on, how the contract is priced, what is the maximum and minimum price change unit, how much is the price change of each basic unit of each contract, and so on.
2. It has a certain validity period.
Commodity futures contracts have expiration dates, stocks do not. For example, Shanghai Gold's March 2020 contract expires in March 2020. Futures generally have about one year of trading time before expiry, so at any time the same commodity has at least 11 contracts with different expiry months circulating in the market at the same time. Investors must know in advance which ones are worth buying and which ones should be avoided (explain this later). The shelf life feature adds to the difficulty of long-term price forecasting. Whenever the old contract expires and the new contract is listed, it is always necessary to draw the chart from scratch accordingly, and the old chart of the expired contract is not very useful, and the new chart and various new technical parameters have to be rebuilt. It doesn't matter if there is new and old in the market, but it is really tricky to maintain a long-term chart. Even with the help of a computer, it is necessary to start from scratch and spend considerable manpower and material resources to refresh the data.
3. Lower margin level.
This distinction is probably the most important. All futures are traded on margin, and the margin required by most futures is about 10%. Low margin levels result in high leverage. No matter which direction the price changes even a little bit, it will affect the overall trading performance. Because of this, it is possible to make or lose a large amount of money in a very short period of time in the futures market. Since a trader puts down only 10% of his deposit and makes 100% of his trades, a 10% price change can either double his stake or wipe him out. The time does not necessarily have to be long. After breakfast to open a position, the whole process may be over before lunch time. Leverage in the futures market amplifies market moves, making them appear more volatile than they really are. If someone threatens to be "looted" in the mortgage market, please remember that he initially took 10% for 100%.
From the perspective of technical analysis, the leverage effect makes the step of choosing the timing of entering and exiting the market more important in the futures market than in the stock market. On the one hand, choosing the timing of entering and exiting the market correctly is the key to the success of the transaction, and on the other hand, it is also a major issue for market analysis. It is precisely in this way that the trading strategy centered on technical analysis has become the crucial and indispensable key to the success of futures trading.
4. The time domain is greatly reduced.
Under the effect of leverage, futures traders must pay close attention to every move of the market, so the time domain they care about must also be nuanced. In contrast, stock market analysts prefer longer-term charts and study longer-term issues. What they may want to predict is the market in 3 months or half a year. What futures traders want to know is what the situation will be like next week, tomorrow or even the next half of the day, so some of the tools that have been extracted with immediate effect may be unheard of by stock market analysts. An example is the moving average. The most widely used in stock market analysis is the 30-week or 200-day moving average, while in the futures market, most of them are below 40 days, and the popular moving average combinations are 4 days, 9 days and 18 days.
5. Timing is more critical.
For futures traders, timing is everything. Getting the market direction right is only a small part of the answer. A difference of one day, sometimes even a few minutes, between entering the market can make the difference between success and failure. Being wrong about the market trend and losing money is bad, but being in the right direction and still losing money is the most frustrating and daunting part of futures trading. Fundamental factors seldom change from day to day, so it goes without saying that timing issues are purely technical in nature.
6. The average index of broad commodity prices is used less.
Changes in stock averages, such as the Dow Jones Industrial Average or the S&P 500, are extremely noticeable. In fact, this is the starting point for all stock market analysis. This is generally not the case in futures markets. While there are indices that represent the general direction of commodity prices, such as the Commodity Research Bureau Futures Price Index (CRB), they are not as prominent as stock indices.
7. Extensive technical signals are rarely used in the futures market.
Broad technical signals are very important in stock market analysis, such as rising and falling lines, new high and new low indexes, short-to-short movement ratios, etc., but they are not popular in the futures market. This is not because their theory and practice are not suitable for futures at all. Maybe one day the types of futures will increase greatly, and it will be necessary to use these broad indicators to judge the overall market movement, but they have not been used so far.
8. Specific technical tools.
Most of the technical tools that originated in stock market analysis can also be applied to commodity markets, but the usage is not exactly the same.
For example, the chart pattern of futures is often not as complete as that in the stock market, the number of days of the moving average is much less, and the traditional point-and-figure chart is not widely used. This is because point and figure charts are mainly used by floor investors because it is difficult to obtain details of daily price data. These and other differences in usage will be discussed further later in this course.
Finally we come to another important difference between stocks and futures. When conducting technical analysis of the stock market, it attaches great importance to sentiment index and capital movement. The sentiment index is used to track and display the performance of various groups such as retail investors, mutual funds, and floor investors. According to the principle that "the truth is always on the side of the few", the sentiment index is an extremely important basis for judging whether the market is generally bullish or bearish. Fund Movements is used to examine the cash positions of different groups, such as mutual funds or accounts of large institutional investors. Its basic theory is that the larger the cash position, the greater the potential to buy stocks. As far as technical analysis itself is concerned, both are auxiliary in nature, but stock market analysts pay more attention to them than traditional market analysis.
In my personal opinion, technical analysis in the futures market is a more pure price study. Although the theory of contrary opinion has its advantages within a certain range, the application of basic trend analysis and traditional technical indicators is more critical.
Add
