A Complete Guide to the Futures Market, 2nd Edition

Book description

The essential futures market reference guide

A Complete Guide to the Futures Market is the comprehensive resource for futures traders and analysts. Spanning everything from technical analysis, trading systems, and fundamental analysis to options, spreads, and practical trading principles, A Complete Guide is required reading for any trader or investor who wants to successfully navigate the futures market.

Clear, concise, and to the point, this fully revised and updated second edition provides a solid foundation in futures market basics, details key analysis and forecasting techniques, explores advanced trading concepts, and illustrates the practical application of these ideas with hundreds of market examples. A Complete Guide to the Futures Market:

  • Details different trading and analytical approaches, including chart analysis, technical indicators and trading systems, regression analysis, and fundamental market models.
  • Separates misleading market myths from reality.
  • Gives step-by-step instruction for developing and testing original trading ideas and systems.
  • Illustrates a wide range of option strategies, and explains the trading implications of each.
  • Details a wealth of practical trading guidelines and market insights from a recognized trading authority.

Trading futures without a firm grasp of this market’s realities and nuances is a recipe for losing money. A Complete Guide to the Futures Market offers serious traders and investors the tools to keep themselves on the right side of the ledger.

Table of contents

  1. About the Authors
  2. Part I: Preliminaries
    1. Chapter 1: For Beginners Only
      1. Purpose of This Chapter
      2. The Nature of Futures Markets
      3. Delivery
      4. Contract Specifications
      5. Volume and Open Interest
      6. Hedging
      7. Trading
      8. Types of Orders
      9. Commissions and Margins
      10. Tax Considerations
      11. Notes
    2. Chapter 2: The Great Fundamental versus Technical Analysis Debate
      1. Notes
  3. Part II: Chart Analysis and Technical Indicators
    1. Chapter 3: Charts: Forecasting Tool or Folklore?
      1. Notes
    2. Chapter 4: Types of Charts
      1. Bar Charts
      2. Linked Contract Series: Nearest Futures versus Continuous Futures
      3. Close-Only (“Line”) Charts
      4. Point-and-Figure Charts
      5. Candlestick Charts
    3. Chapter 5: Linking Contracts for Long-Term Chart Analysis: Nearest versus Continuous Futures
      1. The Necessity of Linked-Contract Charts
      2. Methods of Creating Linked-Contract Charts
      3. Nearest versus Continuous Futures in Chart Analysis
      4. Conclusion
      5. Notes
    4. Chapter 6: Trends
      1. Defining Trends by Highs and Lows
      2. TD Lines
      3. Internal Trend Lines
      4. Moving Averages
      5. Notes
    5. Chapter 7: Trading Ranges
      1. Trading Ranges: Trading Considerations
      2. Trading Range Breakouts
    6. Chapter 8: Support and Resistance
      1. Nearest Futures or Continuous Futures?
      2. Trading Ranges
      3. Prior Major Highs and Lows
      4. Concentrations of Relative Highs and Relative Lows
      5. Trend Lines, Channels, and Internal Trend Lines
      6. Price Envelope Bands
    7. Chapter 9: Chart Patterns
      1. One-Day Patterns
      2. Continuation Patterns
      3. Top and Bottom Formations
      4. Notes
    8. Chapter 10: Is Chart Analysis Still Valid?
    9. Chapter 11: Technical Indicators
      1. What Is an Indicator?
      2. The Basic Indicator Calculations
      3. Comparing Indicators
      4. Moving Average Types
      5. Oscillators and Trading Signals
      6. Indicator Myths
      7. Indicator “Types”
      8. Conclusion
      9. Notes
  4. Part III: Applying Chart Analysis to Trading
    1. Chapter 12: Midtrend Entry and Pyramiding
    2. Chapter 13: Choosing Stop-Loss Points
      1. Note
    3. Chapter 14: Setting Objectives and Other Position Exit Criteria
      1. Chart-Based Objectives
      2. Measured Move
      3. Rule of Seven
      4. Support and Resistance Levels
      5. Overbought/Oversold Indicators
      6. DeMark Sequential
      7. Contrary Opinion
      8. Trailing Stops
      9. Change of Market Opinion
      10. Note
    4. Chapter 15: The Most Important Rule in Chart Analysis
      1. Failed Signals
      2. Bull and Bear Traps
      3. False Trend Line Breakouts
      4. Return to Spike Extremes
      5. Return to Wide-Ranging Day Extremes
      6. Counter-to-Anticipated Breakout of Flag or Pennant
      7. Opposite Direction Breakout of Flag or Pennant Following a Normal Breakout
      8. Penetration of Top and Bottom Formations
      9. Breaking of Curvature
      10. The Future Reliability of Failed Signals
      11. Conclusion
  5. Part IV: Trading Systems and Performance Measurement
    1. Chapter 16: Technical Trading Systems: Structure and Design:
      1. The Benefits of a Mechanical Trading System
      2. Three Basic Types of Systems
      3. Trend-Following Systems
      4. Ten Common Problems with Standard Trend-Following Systems
      5. Possible Modifications for Basic Trend-Following Systems
      6. Countertrend Systems
      7. Diversification
      8. Ten Common Problems with Trend-Following Systems Revisited
      9. Notes
    2. Chapter 17: Examples of Original Trading Systems
      1. Wide-Ranging-Day System
      2. Run-Day Breakout System
      3. Run-Day Consecutive Count System
      4. Conclusion
      5. Notes
    3. Chapter 18: Selecting the Best Futures Price Series for System Testing
      1. Actual Contract Series
      2. Nearest Futures
      3. Constant-Forward (“Perpetual”) Series
      4. Continuous (Spread-Adjusted) Price Series
      5. Comparing the Series
      6. Conclusion
      7. Notes
    4. Chapter 19: Testing and Optimizing Trading Systems
      1. The Well-Chosen Example
      2. Basic Concepts and Definitions
      3. Choosing the Price Series
      4. Choosing the Time Period
      5. Realistic Assumptions
      6. Optimizing Systems
      7. The Optimization Myth
      8. Testing versus Fitting
      9. The Truth about Simulated Results
      10. Multimarket System Testing
      11. Negative Results
      12. Ten Steps in Constructing and Testing a Trading System
      13. Observations about Trading Systems
      14. Notes
    5. Chapter 20: How to Evaluate Past Performance
      1. Why Return Alone Is Meaningless
      2. Risk-Adjusted Return Measures
      3. Visual Performance Evaluation
      4. Investment Insights
      5. Notes
  6. Part V: Fundamental Analysis
    1. Chapter 21: Fourteen Popular Fallacies, or What Not to Do Wrong
      1. Five Short Scenes
      2. The Fourteen Fallacies
    2. Chapter 22: Supply-Demand Analysis: Basic Economic Theory:
      1. Supply and Demand Defined
      2. The Problem of Quantifying Demand
      3. Understanding the Difference between Consumption and Demand
      4. The Need to Incorporate Demand
      5. Possible Methods for Incorporating Demand
      6. Why Traditional Fundamental Analysis Doesn’t Work in the Gold Market
      7. Notes
    3. Chapter 23: Types of Fundamental Analysis
      1. The “Old Hand” Approach
      2. The Balance Table
      3. The Analogous Season Method
      4. Regression Analysis
      5. Index Models
    4. Chapter 24: The Role of Expectations
      1. Using Prior-Year Estimates Rather Than Revised Statistics
      2. Adding Expectations as a Variable in the Price-Forecasting Model
      3. The Influence of Expectations on Actual Statistics
      4. Defining New-Crop Expectations
    5. Chapter 25: Incorporating Inflation
      1. Notes
    6. Chapter 26: Seasonal Analysis
      1. The Concept of Seasonal Trading
      2. Cash versus Futures Price Seasonality
      3. The Role of Expectations
      4. Is It Real or Is It Probability?
      5. Calculating a Seasonal Index
    7. Chapter 27: Analyzing Market Response
      1. Evaluating Market Response for Repetitive Events
    8. Chapter 28: Building a Forecasting Model: A Step-by-Step Approach:
    9. Chapter 29: Fundamental Analysis and Trading
      1. Fundamental versus Technical Analysis: A Greater Need for Caution
      2. Three Major Pitfalls in Fundamental Analysis
      3. Combining Fundamental Analysis with Technical Analysis and Money Management
      4. Why Bother with Fundamentals?
      5. Are Fundamentals Instantaneously Discounted?
      6. Fitting the News to Price Moves
      7. Fundamental Developments: Long-Term Implications versus Short-Term Response
      8. Summary
  7. Part VI: Futures Spreads and Options
    1. Chapter 30: The Concepts and Mechanics of Spread Trading
      1. Introduction
      2. Spreads—Definition and Basic Concepts
      3. Why Trade Spreads?
      4. Types of Spreads
      5. The General Rule
      6. The General Rule—Applicability and Nonapplicability
      7. Spread Rather Than Outright—An Example
      8. The Limited-Risk Spread
      9. The Spread Trade—Analysis and Approach
      10. Pitfalls and Points of Caution
      11. Notes
    2. Chapter 31: Intercommodity Spreads: Determining Contract Ratios
      1. Notes
    3. Chapter 32: Spread Trading in Stock Index Futures
      1. Intramarket Stock Index Spreads
      2. Intermarket Stock Index Spreads
    4. Chapter 33: Spread Trading in Currency Futures
      1. Intercurrency Spreads
      2. Intracurrency Spreads
      3. Notes
    5. Chapter 34: An Introduction to Options on Futures
      1. Preliminaries
      2. Factors That Determine Option Premiums
      3. Theoretical versus Actual Option Premiums
      4. Delta (the Neutral Hedge Ratio)
      5. Notes
    6. Chapter 35: Option Trading Strategies
      1. Comparing Trading Strategies
      2. Profit/Loss Profiles for Key Trading Strategies
      3. Notes
  8. Part VII: Practical Trading Guidelines
    1. Chapter 36: The Planned Trading Approach
      1. Step 1: Define a Trading Philosophy
      2. Step 2: Choose Markets to Be Traded
      3. Step 3: Specify Risk Control Plan
      4. Step 4: Establish a Planning Time Routine
      5. Step 5: Maintain a Trader’s Spreadsheet
      6. Step 6: Maintain a Trader’s Diary
      7. Step 7: Analyze Personal Trading
      8. Notes
    2. Chapter 37: Seventy-Five Trading Rules and Market Observations
      1. Entering Trades
      2. Exiting Trades and Risk Control (Money Management)
      3. Other Risk-Control (Money Management) Rules
      4. Holding and Exiting Winning Trades
      5. Miscellaneous Principles and Rules
      6. Market Patterns
      7. Analysis and Review
    3. Chapter 38: 50 Market Wizard Lessons
      1. Notes
  9. Appendix A: Introduction to Regression Analysis
    1. Basics
    2. Meaning of Best Fit
    3. A Practical Example
    4. Reliability of the Regression Forecast
    5. Notes
  10. Appendix B: A Review of Elementary Statistics
    1. Measures of Dispersion
    2. Probability Distributions
    3. Reading the Normal Curve (Z) Table
    4. Populations and Samples
    5. Estimating the Population Mean and Standard Deviation from the Sample Statistics
    6. Sampling Distribution
    7. Central Limit Theorem
    8. Standard Error of the Mean
    9. Confidence Intervals
    10. The t-Test
    11. Notes
  11. Appendix C: Checking the Significance of the Regression Equation
    1. The Population Regression Line
    2. Basic Assumptions of Regression Analysis
    3. Testing the Significance of the Regression Coefficients
    4. Standard Error of the Regression
    5. Confidence Interval for an Individual Forecast
    6. Extrapolation
    7. Coefficient of Determination (r2)
    8. Spurious (“Nonsense”) Correlations
    9. Notes
  12. Appendix D: The Multiple Regression Model
    1. Basics of Multiple Regression
    2. Applying the t-Test in the Multiple Regression Model
    3. Standard Error of the Regression
    4. Confidence Intervals for an Individual Forecast
    5. R2 and Corrected R2
    6. F-Test
    7. Analyzing a Regression Run
    8. Notes
  13. Appendix E: Analyzing the Regression Equation
    1. Outliers
    2. The Residual Plot
    3. Autocorrelation Defined
    4. The Durbin-Watson Statistic as a Measure of Autocorrelation
    5. The Implications of Autocorrelation
    6. Missing Variables and Time Trend
    7. Dummy Variables
    8. Multicollinearity
    9. Addendum: Advanced Topics
    10. Heteroscedasticity
    11. Notes
  14. Appendix F: Practical Considerations in Applying Regression Analysis
    1. Determining the Dependent Variable
    2. Selecting the Independent Variables
    3. Should the Preforecast Period Price Be Included?
    4. Choosing the Length of the Survey Period
    5. Sources of Forecast Error
    6. Simulation
    7. Stepwise Regression
    8. Sample Step-by-Step Regression Procedure
    9. Summary
    10. Notes
  15. References and Recommended Readings
  16. Index
  17. EULA

Product information

  • Title: A Complete Guide to the Futures Market, 2nd Edition
  • Author(s): Jack D. Schwager, Mark Etzkorn
  • Release date: January 2017
  • Publisher(s): Wiley
  • ISBN: 9781118853757