How to Read Futures Charts

How to Read Futures Charts in Trading

11 min read

Do you know how to read futures charts? You’ll see the time and date on the X-axis (horizontal) and the Y-axis (vertical) price information. The period you’re looking at can change depending on the view from seconds to minutes, days, weeks, or months. The basics are the same whether you’re looking at futures or another type of asset. These will help you to read futures charts.

Chart reading for any market is essential. It gives you a wealth of information—for example, support and, resistance, and patterns.

As a result, you have a much better idea of where a stock is going. While it’s not 100% foolproof, it helps immensely to improve the success of your trading.

To trade futures, you must know how to read futures charts. When we wish to trade futures, we’re lucky enough to have an abundance of the info provided by their quotes and charts. The charts show us the changes in supply and demand in real-time.

When we’re good at reading the signs these charts provide, we’re more likely to make profits in our trades. Understanding how to read these charts is vital to make an informed trading decision.

You can use the different time frames to see if your indicators agree; the more so, the better the trend. Ten pieces of information are included with a quote as well.

10 Keys on How to Read Futures Chart

  1. The Open: The day’s first transaction price
  2. The Close, aka the Settlement: The price of the day’s last transaction
  3. The High: The highest price paid for the contract during the session
  4. The Low: The lowest price paid for the contract during the session.
  5. The Change: The difference between the previous session’s close and the current session’s close. It will be quoted in dollar difference as well as a percentage difference.
  6. The 52-Week High and Low: The previous year’s highest and lowest prices paid for the contract.
  7. The Open Interest: The current number of futures contracts that are open.
  8. The Session’s Volume: The total number of contracts bought/sold during the session.
  9. The Exchange: Where the contracts are traded (i.e., the Chicago Board of Trade CBOT).
  10. The Contract/Ticker code: A futures contract has a name/code explaining the asset and its expiration date. The ticker code comprises three parts; the first part is a one to three-letter code that identifies the particular asset: crude oil is CL. The second part is a one-letter designation to identify the expiry month, and the third is the expiration year.

These ten things will help you know how to read futures charts. Whether a tick chart or not.

Ticker Code by Month

The month designation of a ticker code is a bit unusual, so here’s a chart to help you identify the correct month code. Misidentifying oneself could be a big financial mistake. So, you need to know how to read futures charts. 

Month Month Code
January F
February G
March H
April J
May K
June M
July N
August Q
September U
October V
November X
December Z

Ticker Code Example

When learning how to read futures charts, here is a simple example of a ticker code:

NQH21, the first two letters “NQ” stands for the Nasdaq 100 E-mini future, the “H” indicates the month of March, and the “21” indicates the year 2021. Some charts may only put a “1” instead of a “21”.

Remember, the contracts closer to expiry are shown at the top of a quote chart, while those further from expiry are further down the list. Usually, the further the contract expires, the less trading volume it has.

How to Read Futures Charts Example

Barchart Website

How to Read Futures Charts Technical Analysis

Do you know how to read futures charts? You need to know how to read any trading chart if you’re going to be a good trader. That starts with candlesticks. They help you find patterns along with support and resistance.

Next, you can learn how to read moving averages. These can help with direction as well as support and resistance. If you’re looking for a legend at chart reading, look no further than the teachings of Al Brooks Trading.

Candlestick Charts

Start with candlesticks if you want to know how to read futures charts. When looking at bars or candlesticks, each will show the opening and closing prices and the highs and lows for that period. The top line (or where the wick ends) is the high.

The top of the candle is open if red and closed if green. The bottom of the candle is open if green and close if red. And the bottom wick end is the low for the period. If you can spot bearish or bullish candlesticks, you’re well on your way to knowing how to read futures charts.

If you see a few greens in a row, the price goes up, and if you see a few reds, the price goes down. Different candlestick patterns can indicate different things happening in the market. Knowing these is important.

Two common patterns are the W and the M. The W comprises two lows at the same level with a high point between them. The W shape can indicate that the price will climb once the high point has been surpassed.

While the M shape is the reverse, two highs with a lower midpoint indicate that the high has been reached, and a downtrend will occur if the middle point is passed. These two candlestick patterns can help you to identify when to enter and exit a position.

On top of candlesticks, you can add various trendlines. These are ideal for helping to determine the future of the future. If a straight line can connect three highs or lows, then you have identified a trend.

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HIGHLIGHTS

How to Read Futures Charts Warnings 

You should know that most free quotes are delayed by 10-20 minutes. For this reason, you need to use a live info trading platform or service.

Also, all indicators indicate the past and are not definite indicators of the future. You need more than just the indicator to make a reliable trading decision.

Knowing the warnings can be a great help with knowing how to read futures charts. If you want to know how to read futures charts, then make sure to take our futures trading course.

What Is the Forward Curve?

Do you know how to read futures charts? A futures forward curve shows the relationship between the price of futures contracts and their expiration times on a graph. 

1. Y-Axis (Price)

The y-axis of the futures curve represents the prices of the futures contracts. Price levels are typically plotted vertically, with higher prices towards the top and lower prices towards the bottom. The y-axis scale can be adjusted depending on the price levels.

2. X-Axis (Time)

 The x-axis of the futures curve represents time, typically measured in months or years. It shows the progression of contract expiration dates from left to right, starting from the current month or the nearest expiration month displayed.

It shows the pricing levels of future contracts at various points in time along the curve, typically starting from the present and extending into the future.

Futures Forward Curve Breakdown

The futures forward curve provides information about market expectations for the future price of the underlying asset. By examining the curve’s shape and movement, traders and analysts can gain insights into supply and demand dynamics, market sentiment, and expectations for future prices.

Upward Slope (Cotango), Downward Slope (Backwardation) & Flat Slope Explained

Dust off your old math book and walk down memory land when learning how to read futures charts. First, if the futures forward curve slopes upward (contango), the market thinks the underlying asset’s price will increase over time. Conversely, if the curve slopes downward (backwardation), the market thinks the asset’s price will decrease over time. A flat curve suggests that the price will remain relatively stable as time goes on.

How Do You Read a Futures or Forward Curve?

Reading a futures curve involves understanding the relationship between the prices of futures contracts of the same underlying asset but with different expiration dates. To make sense of the forward curve, you’ll need to understand a few key components:

Expiration Dates

Futures contracts have different expiration dates, typically referred to as contract months. These dates represent when the contracts will mature and settle. The futures curve shows the prices of contracts with various expiration dates, arranged chronologically from left to right.

Contango

A contango futures curve slopes upward from left to right, indicating that future contract prices are higher than the current spot price. A curve like this suggests that market participants expect the underlying asset’s price to increase over time. Contango is a typical shape for futures curves in commodities markets.

Backwardation

A backwardation futures curve slopes downward from left to right, indicating that future contract prices are lower than the current spot price. A curve like this suggests that market participants expect the underlying asset’s price to decrease over time. Backwardation is less common but can occur during supply scarcity or high demand.

Flat or Neutral

A flat or neutral futures curve indicates that prices for future contracts remain relatively stable over time. This shape suggests a balance between supply and demand expectations.

Spread Analysis

Traders often compare the price differentials between contracts at different expiration dates to identify potential trading opportunities or market imbalances. This is known as spread analysis. Typical spreads include front-month versus back-month contracts, or inter-commodity spreads between related futures contracts.

Analyzing the Futures Forward Curve

The importance of analyzing the future forward curve can’t be understated. Most importantly, it allows traders to assess potential risks and opportunities, such as trading spreads between contract expiration dates or constructing hedging strategies.

Factors Affecting the Curve

 Various factors affect the shape of the futures curve, such as:

  • supply and demand dynamics
  • market sentiment
  • interest rates
  • storage costs (for commodities)
  • Seasonal patterns 
  • Geopolitical events

Understanding these factors and how they impact the futures curve can provide valuable insights for trading decisions.

It’s important to note that interpreting futures forward curves requires knowledge and understanding of the specific market and the underlying asset traded. Because of this, I suggest taking the futures trading course offered by Bullish Bears traders. The course will show you how to analyze the curve with other indicators and market information to make informed decisions.

Final Thoughts: How to Read Futures Charts

Have you learned how to read futures charts? Quotes and futures charts can provide you with a lot of good information. How you use this to help you trade is up to you.

Ensure that you never invest too much in one single transaction. And have a reason for trading more than just gut instinct or the chart. As always, good luck with your trading.

Frequently Asked Questions

It would help if you studied the price axes (x) and time axes (y). With that information, you must rely on your choice indicators to make informed trading decisions. 

A ticker code consists of three components. The initial part is a one- to three-letter code specifying the particular asset. For instance, crude oil has the code CL. The second portion is a one-letter identifier that indicates the expiry month, and the third section is the expiration year. 

An upward curve means the market thinks the underlying price will increase in time. Alternatively, a downward curve implies the market thinks the price will decrease as time passes. 

Analyzing futures trading involves a combination of both fundamental and technical analysis.  

The key statistic is price. Although trade volume and open interest are important factors, price is the key statistic. 

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