Futures Trading Using Support And Resistance

One of the most important tools available when trading emini contracts is the use of support and resistance. Support and Resistance is the basis of most technical analysis chart patterns and are two of the most widely used technical indicators in trading and investing, largely due to their ease of use and relevance. Support and resistance is based on the concept in technical analysis that the price of futures will reverse at certain predetermined price levels, usually in areas where the futures has reversed previously.

Support and resistance lines can give emini traders valuable clues about the possible future price movement of the contract and establish a trading range. Trading ranges can play an important role in determining support and resistance as turning points or as continuation patterns. Once a trading range has been established, it is possible to trade in and out of one of emini futures over a long period of time, often buying the contract when it reaches established support and selling once the futures contract reaches established resistance. After selling, it may take a few weeks or months for the stock to return to support levels before re-entry and repeating the process.

Another term for a trading range is a channel. Most futures trade within a channel, or a narrow band of support and resistance. Usually for futueres to break out of this channel, requires a significant event.

Once this happens and the contract breaks through established resistance, the established resistance line becomes new support. Many times this scenario can be best described as a bouncing ball breaking through a ceiling with the ceiling now becoming the floor on the next level. This process also works in reverse. If the market releases news that is negative, traders will head for the exits applying selling pressure on the futures contract price. Where established support once existed, now support has become the new resistance line. A new support level for the emini futures must be established. Support and resistance is like a floor and a ceiling, with prices sandwiched between them.

Used alone, support and resistance levels can be a powerful indicator when trying to establish entry and exit points. Coupled with other indicators, the power of support and resistance levels only increases this potential. To be successful at futures trading, a trader must use time and study to establish a trading system that works and is profitable.

By: Jagger Stone

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Using support and resistance levels will enhance any trading system and increase your chances of being successful in trading emini future contracts. Learn more about futures trading in a emini trading room