Identify Bullish Market Signals With Futures Trading Indicators

There are a number of ways to indentify bullish markets signals and for many new traders, finding trading indicators they are comfortable with is an important first step. To help you get started, included below is an overview of a a few of these indicatators and charting patterns to look for in your backtesting.

  • Simple Moving Averages (SMAs)
  • Bullish Divergence
  • Triple Bottom Patterns
  • Golden Cross Patterns

Simple Moving Averages (SMA)

A simple moving average can be defined as the average of a financial instrument’s price at market close over the last X number of days. Variations of these simple moving averages are often used by traders in combination with market price action to identify the beginning of a potential bullish or rising market trend. These averages can look at different timeframes including 50, 100 and 200 days.

The chart below of the Nasdaq (NQ) and Dow (YM) futures contracts provides a look at market conditions that preceded bullish trends in 2016/2017:

Simple Moving Average Indicator

A commonly used ‘one-two punch’ futures traders rely on for technical analysis is the combination of a 50 day SMA and a 100 day SMA.

Bullish Divergence

Bullish divergence occurs when more recent market price action lows have reached a bottom or have ceased making new lows. This indicator can be used to help identify a market turning point or reversal resulting in a new bullish trend.

A bullish divergence can potentially be validated via technical analysis if both of the following conditions are met:

  • A spike in trading volume occurs
  • A moving average of fewer days (ie. 50 day) increases in price higher than a moving average of greater days (ie. 100 day)

The chart below of the Nasdaq futures contract (NQ) is a good example of a bullish divergence occurring as the 100 and 50 day SMA’s cross, ending with the 50 day SMA on top:

Bullish Divergence Chart

Triple Bottom Pattern

A triple bottom pattern demonstrates a bullish reversal in which three ‘dip’ or ‘valley’ chart patterns form in the same price range. One threshold to watch for to potentially validate a triple bottom pattern is if the three price ‘valleys’ form below a moving average of significant time (ie. 100 day SMA).

The chart below of the Nasdaq futures contract (NQ) is a good example of a triple bottom occurring below the 100 day SMA:

Triple Bottom Pattern Chart

Golden Cross Pattern

The golden cross pattern is often viewed as a bullish breakout or ‘buy’ indicator which occurs when a short term (faster) moving average breaches above a long term (slower) moving average. It is worth noting that bullish golden crosses are rarely occurring. They should be used as long term indicators to gain a broad view of a market’s trend. As applied to day trading, golden crosses can potentially be used to gain a wider perspective of the market.

The chart below of the Nasdaq futures contract (NQ) and Dow futures contract (YM) on which the 50 day SMA crosses above the 200 day SMA is a good example of a Bullish Golden Cross:

Golden Cross Pattern Chart

As always, remember past performance is not indicative of future results and you should always trade within your risk tolerance levels.

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