Unravelling the Role of Volume in Futures charting


When it comes to charting Futures markets using a continuation chart, there's a plethora of approaches available.  Ideally, if Futures contracts maintained consistent trading volume from the first trading day (FTD) to the last trading day (LTD), charting would be straightforward.  Unfortunately, the reality is different, and traders must contend with the fluctuating volume of each Futures contract.

The term 'front month' refers to the nearest expiration date in futures trading. It is commonly used when describing futures or options contracts with earlier expiration dates.  The 'back month' refers to contracts that expire later than the front month.


During the initial months of trading a Futures contract, there is minimal volume, resulting in an illiquid environment that distorts charts.  These early charts display numerous dots and gaps, indicating the lack of substantial trading volume.  Over time, as earlier contracts expire, their volume trickles down to subsequent contract months, enhancing liquidity.

Consequently, the charts evolve, transforming from scattered dots and gaps to more coherent, full-bodied candle patterns. As a contract becomes the near month with the highest volume, all traders and speculators should gravitate toward it.  The only time a trader should stay on the old contract is if a position is on; otherwise, move to the higher liquidity, new contract month.  The contract eventually approaches its expiration LTD, prompting market participants to initiate rollovers to the next contract in the cycle.

The challenge for charting arises during contract expirations and periods of low liquidity in back months, which can hinder detailed technical analysis for traders.  To address this issue, Futures charts can be spliced together at each contract expiration, creating a seemingly continuous historical chart.  The only limitation lies in the commencement date of the actual Futures market, with different markets tracing back to various historical periods.


Solving the Unadjusted Continuous Futures Chart Puzzle


The quest for a reliable unadjusted continuous Futures chart symbol has led to the exploration of alternatives, particularly on the TradeStation platform.  While a symbol intended for unadjusted charts initially seemed promising, discrepancies emerged, prompting a search for a more accurate solution.


One such symbol recommended for an unadjusted continuous Futures contract is:


Example: Crude oil @CL=103XN


@ = Continuous Chart

CL = Root Symbol of Commodity Future Market

1 = Roll to the next contract month in the cycle

03 = Day to roll data before contract expires

 X = Until Expiration

N = Un-Adjusted style


While this symbol works well, it has a limitation: some Futures markets may not roll over the same number of days at each expiration, potentially causing disparities in shorter-term charts.


Charting Consistency Across Futures Markets:

For traders seeking consistency in unadjusted continuous charts across various Futures markets, the following table provides recommended numbers of days for rollovers before contract expiration:


Market                Rollover X Days Before Expiration

-------- -----------------------------

Stock Indexes    07 

Currencies            03 

Interest Rates        14                

Metals                20                    

Live Cattle           17                    

Lean Hogs             09                 

Feeder Cattle         10                 

Grains & Oil Seeds    10             

Sugar                 10                      

Coffee                20                    

Cocoa                 20                    

Orange Juice          08                

Lumber                17                    

Cotton                10                     

Crude Oil             03                    

Heating Oil           03                  

Gasoline              03                   

Natural Gas           03                 

Stoxx 50              01                    


These recommended rollover days aim to align charts consistently with what other traders are viewing across different chart packages.

While the Futures industry continues its search for a universal continuous chart symbol, traders are encouraged to find a chart style that suits them to avoid analysis paralysis amidst the variety of available charting options.