Historical Simulator Plug-in
Long Term Charts Introduction
In this example I want to talk to you about Long Term Charts. What you're seeing here is my Corn 2001 December contract.
The way we get a Long Term Chart is we simply just come over here to this button and we click on the weekly, and that gives us a weekly chart. You can see on my chart that weekly chart is up to, right up to the date that I had my daily chart on. Then, I come over here and I do my weekly- excuse me, my monthly chart. That gives me my monthly chart brought right up to the same day that my daily chart was played to.
That's one key feature that I really enjoy about Track 'n Trade, is if you're simulating trading and you want to use your long term charts. Let's say for example we want to come back to corn 1985, okay, and I open up my daily chart, this is my 1985 daily corn contract. Now, if I come over and see I've got my 1985 contract highlighted and I hit on my weekly, it's going to give me a 1985 weekly long term chart. It's not just going to give me a chart played all the way to 2002, it's going to give me a 1986 chart. So, if I'm simulating trading and I want to use my long term charts as a method of helping me determine my direction of market or my analysis, then I don't look at a long term chart which would then in essence have me cheat. Because it would tell me, you know if I'm looking at a 2002 long term chart, it would tell me what the future was of this contract.
Well, with Track 'n Trade, I come in here and I have a 1985 chart, so when I do weekly or monthly chart I get a weekly or monthly 1985 chart. So, I can come back here and analyze my 1985 long term chart, go back into my 1985 daily chart and continue with my analysis. So, it's a really good method of coming in and allowing you to still use your long term charts, without seeing the future of the contract, which keeps you from cheating. It brings a little bit more realism, and one more tool to you when you're doing your simulated trading back in history, trying to, you know, better yourself.
So, if I come in here and I hit monthly, there again, it does the same thing; it pulls up a monthly chart for me. It gives me the monthly based on the 1995 underlying chart. So, you can see that's a monthly 1985 chart. So, now I've got two monthly's on here. I've got a 2000 monthly chart and I've got a 1985 monthly chart. So, don't get confused between the monthly charts. They have the dates on them, they show you what they played to.
Now, of course I can come onto the 1985 chart and I can use my play controls and I can start playing it forward.
Now, of course a monthly chart, a monthly chart is a compilation of one tic per month. A weekly chart is a compilation of the underlying daily chart of one tic per week. The way they're compiled is you come in here to the long term charts and they are compiled built on the front month. That's the default in Track 'n Trade.
The Front Month means that, well, let's just read this down here: This Option uses data from from one contract month to the next in historical order. For example: Jan 2001, March 2001, May 2001, and so on.
Contract Month Data is the other method and you can come up here and you can choose Contract Month Data. Contract Month Data: This Option uses data from a Contract Month from each successive year. For example Jan 2001, Jan 2002, Jan 2003, and so on. So, there's different methods of creating your long term charts. The most popular, of course is from the front month. That's what you'll see if you're looking at other, most other vendors create Front Month Contracts, or long term charts.
But here in Track 'n Trade, we also give you the ability to do Contract Months, long term charts.
Now, you come in here and you set the length of time. Generally, on a weekly you don't want to go back much further than 5 years, but you can go back as far as 10 in Track 'n Trade. Then, the monthly long terms, you can go back as far as 25 years. Generally, I have mine right around 10. Then, there's another little feature in here that we've thrown in Track 'n Trade. That's: Read ahead to the next contract month before the end of the current month, before the contract ends. Now, the reason that you might want to do that, if you click that on there, and say, let's go maybe 10 days. What that's going to do for you, is if you come into your daily chart. The underlying chart, now, see how we've got a lot of volume and open interest in here. The contract is very liquid, and the last 10 days about drop right off, to almost nothing. So, if you have even your open interest- see, it just drops right off to about nothing.
So, what we've done is we've given you the ability to knock off the data of the last however many days you want to. So, if you go back 10 days, this much data wouldn't be taken into account in your long term chart. What that's going to do is give you a smoother transition because what we do, is we take the last bit of each chart, and then when we convert to the next active chart. So, there's a bit of a transition between each one. That gives you less of a jump between each transition. That's really all that does for you. So, your long term charts aren't quite so jumpy.
Now, I want to show you how I use the long term charts for analysis. What I do is, let's say we're looking at this December 2001 contract. I want to go over to my weekly chart. Markets have a tendency to trade in ranges. What I mean by that is a contract price will never go too extremely high and will, you know- even though the likelihood of it going to zero is almost nothing, there is a likelihood, you know, a contract could go to zero. You now, Stocks do it all the time, Stocks will go to zero. But corn doesn't, you know, the likelihood of it going to zero is pretty slim. Not to say that it's not possible, because I don't want to say it's not possible, because it is. It is possible that corn could go to zero. But the likelihood of it going to zero is extremely slim. The reason of that, is because we have market demand. You know, supply and demand.
If the corn gets too cheap, then, the farmers will stop making it. They'll stop growing it. They'll start growing a different crop. What that does is that then, pushes the prices back up, because there's not as much corn on the market, and then the prices come back up.
If you remember back in history, you'll think in your mind of times where we had a glut of citrus. They were actually taking the oranges and the citrus off the trees and instead of putting them on the market, which would then lower the price even further, they were throwing it out and feeding it to the cattle. So, what that would do is it pulled some of the citrus off the market. That drove the prices back up to where it was affordable to create orange juice and our frozen concentrated orange juice, again.
So, I think if you remember back where Hogs went through the same thing. I remember here of seeing farmers take their hogs out into the desert and kill them. Rather than putting them on the market, which would drive the price down. It was more expensive for them to raise them and put them on the market than it was to just to kill them. So, they drove the price back up and then they could afford to raise their hogs, again.
So, what I'm trying to get to is that markets have a tendency to trade in a range. When a product gets too expensive, people stop buying it. So, then the farmers have to, you know, when a product gets really expensive the farmers or the producers are going to start creating a whole bunch of it, because they're going to make a lot of money on it. That pulls the price back down. You know, it's the same as when it goes the other way.
You'll find that markets have a tendency to trade in a channel, or trade in a range. So, what I like to do with my monthly and long term charts, is I like to identify those ranges. Then, I know from those ranges, whether my contract is currently in the right, if it's trading within the regular range. A monthly generally show this to me a little bit better than the weekly's excuse me. The monthly's show me this a little bit better than the weekly's. But right now you can see that the during the past what, 1, 2, 3, 4 years, corn has been trading in this range. Right now my current contract that I'm looking at is trading right at almost the 50% level of this range. So, that tells me that corn is neither high, it's neither expensive or cheap. So, that gives me an indication of what side of the market I'm looking at. Whether the market should go up or down.
So, let's open up a different, let's go back to 1985, and look at our monthly contract. Then, what we want to do is bring this out and see what the range is that corn traded in. What I like to do, is I like to knock off the highs and knock off the lows, and take an average, you know so you've got kind of these highs up here. Then you have this low down here. So, if you look at it from that stand point. This is kind of the range that corn liked to trade in during, you know, from 1973 out to 1987. Corn wanted to be in this range somewhere. Now, where corn is down below that range, corn would be considered inexpensive.
Now, if you're farmer or you're around the farming community, and somebody says, 'Oh, corn is this much..' To you, that might mean something. Wow, I can't believe corn is that cheap. But to those of us who are not familiar with the local prices and the cash crop prices of a bushel of corn, I don't know what a bushel of corn. I don't know whether $25.00 is cheap or whether $2.00 is expensive, I don't know. So, I look at my long term charts, and I look at the range in which corn trades, and then I can see the current price. Oh, looks like corn is trading cheap right now, that's cheap corn. So, most likely, corn would be looking to coming back into the range.
You know, we can over and we can look at- let's open up another one. Let's open Oats, 2001, 2002, and we can see that Oats is coming up through a long, a nice long uptrend, here, and it has been for awhile. So, we look at this and say, well, it looks like oats are expensive, at 206.00. You know, let's look at our long term chart, though. Let's look at our monthly. We generate a monthly chart and pull that back- yup, sure is! Look at how expensive Oats are. Oats are pretty expensive, right now. If we kind of put a channel on this, we could say Oats generally like to trade in this little channel down here. Now, we did have this big spike for a couple, three, four years where oats got really expensive. But now oats are trading up here, again. So, yeah, look, oats are pretty expensive right now. They've gone back up into the expensive range, of back in 1996.
So, this is a way for us to know, those of us who don't know whether a product is trading at a high expense or a low expense. This can help you know which direction the market should turn around and go, again. So, I'm looking- right now, oats has come up and is very expensive. So, that means that the farmers, and the producers are going to start creating a lot of oats. Because they can get a lot of money out of oats right now. So, eventually oats are goingto have to come back down into this range that they like to trade.
Now, what you need to do is you need to go back and you need to pull up all of your charts and you need to go through the long term charts, and start looking at the ranges. Knock off the highs and knock off the real lows and try to get an average of where a market likes to trade. You'll find out whether the product is currently trading at a premium or at a discount. This can also help you determine which way direction markets are headed.