In this Track 'n Trade Introduction video, I want to take you through and I want to talk to you about what I believe to be the most powerful tool available to us today, in Futures trading- that being, of course, the seasonal nature of markets.
Now, we're looking here at a chart: this is Cotton. Cotton, of course, as you can see it, is moving along, with what I see as the Seasonal trend. Now, this is a trend Indicator, that has been created from the Historical Data of the market. We've gone back on the blue section, this is 10 years. Also, back on the red section, this is 15 years.
This is telling us, that over the last 10-15 years, on average, what we can anticipate this market doing, over any given period of time.
Now, we use this as a guide in helping us to know and understand where markets might go, and where they might rally or fall, during any given trend.
Now, this is done, because in the commodities market, the markets have a tendency to do the same things, over and over and over and over; year after year after. That's because in the Futures market, we have a situation where- let's take Cotton for example. We plant it at the same time every year. We harvest it at the same time every year. It's susceptible to damage at the same time every year. Drought and too much water. Storage fees, production fees, and transportation cost. All of these things, are very Seasonal in nature. Which causes the market to rally and fall, basically the same times, year, after year. That's why I say it's the closest thing to a crystal ball that we possibly have.
That is just a quick introduction to the seasonal nature of markets, and how we use them to identify trends, in the upcoming market.
Now, here's a chart that I want to talk to you to about, where we've actually turned on the Seasonals trend. Which indicates that this market is going to rally from this time point, here, back in January; all the way into expiration, out here in May. So, we look at the chart itself, and you can see that this chart is rallied up through that same time frame. But notice these two other lines, that are on the screen. Right now, we have turned on the Historical Averages. Notice that the red line is actually a 1 year historical average. While the green line Is a 3 year historical average. Now, the 1 year and the 3 year historical averages are actually price averages that we lay right over the top of the chart. Unlike the seasonal nature of the market, which is down here, which is a trend average; these are the actual price averages. 1 year price average, of course, would be last years prices. So, I like to look at it and I like to be able to see what prices did during this time frame, last year. Then, the 3 year average tells us over the last 3 years, what this market, on average, did in price.
Now, of course, this is the High-Grade Copper Contract, which is a very seasonal market. Starting in January and rallies, (generally over the last 10-15 years, on average) up into expiration at the end of May.
The third Indicator that I want to talk to you to about is, the Market Probability Indicator. The Market Probability Indicator is laid in here, at the bottom of the screen. You can see that it's based on a number of years. This is looking back into the data cube that we create with the Seasonals Indicator. We look at each day individually. We come through and we tell you, what is the likelihood that this market will close higher, or close lower than the previous days close. So, you can come through here and you can see that this day has a high probability, based on the past 14 years, that this market will close higher than the previous day. Over here, you can see that this one has a higher probability, that the market is going to close lower than on the previous day. So, this is our high and low probability days, that these markets are going to rally on those days.
This is what the market probability is used for, and we like to use the Market Probabilities to help us set Stop Loss Orders, to help us reduce our risk and our reward ratios.