When analyzing the Dow Jones futures contract, technical indicators can be helpful to highlight potential trade opportunities, market reversals and price movements. Information obtained from technical analysis can assist traders to forecast future price levels, assess strength in market trends and determine overbought and oversold market conditions.
The following are 3 technical indicators frequently used when analyzing futures markets:
- Forecast Oscillator
- Ease of Movement
- Chande Momentum Oscillator
The Forecast Oscillator compares current price to the time series forecast. If the forecasted price is higher than the current price, the oscillator will read above zero. Conversely, if the forecasted price is less than current price action, then the oscillator will read below zero on the oscillator. Lastly when current price action and forecasted price are in equilibrium, the oscillator will read zero.
The following chart featuring the daily Dow Jones futures contract (YM) from Dec 2016 – Sept of 2017 is an example of the Forecast Oscillator and its relation to price action:
Ease of Movement
The Ease of Movement indicator is used by traders to assess the strength of market trends. Its function is to compare a financial instrument’s change in price to its change in volume. A value on the Ease of Movement indicator greater than zero indicates the instrument is being accumulated, while a value less than zero indicates the financial instrument is under selling pressure.
The following chart featuring the daily Dow Jones futures contract (YM) from Dec 2016 – Sept of 2017 is an example of Ease of Movement indicator behavior when price changes significantly in relation to volume traded:
Chande Momentum Oscillator
Similar to Relative Strength Index (RSI) and Stochastic Oscillator, the Chande Momentum Oscillator is a rangebound indicator (between 100 and -100). A financial instrument is considered overbought when the CMO is above 50 and oversold when its below 50.
The following chart featuring the daily Dow Jones futures contract (YM) from Mar 2017 – Sept of 2017 is an example of Chande Momentum Oscillator behavior when price changes significantly in relation to volume traded:
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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