By Don Dawson, Online Trading Academy Commodity Futures Instructor

Futures trading right now has some recent news events that may affect your trading or open up a new market for you to trade. The two changes I am referring to are the new micro-size Currency Futures contracts traded at the Chicago Mercantile Group (CME Group) and the new home of the Chicago Board of Trade (CBOT) Gold contract.

Recently the CME Group introduced a micro-sized currency Futures contract on all the major currency Futures contracts currently traded at the CME Group. Originally, you could trade the full or mini-sized contracts. By adding the micro-sized contract, this will allow speculators with small accounts to take advantage of the movements in currency markets.

The new micro Futures are:

I will give some specifications to a couple of the new contracts so you can see just how small these contracts are. As you can imagine with tick values (minimum price fluctuation) less than $1 these are very affordable to most all traders.

All of these products trade on the Globex platform at the CME Group. These products would probably be better-suited to longer term trading rather than day trading. The reason being that the commissions that one would pay for a round turn trade will average around $5.00 per trade. With markets like the British Pound trading at only $.625 per tick, you would have to get 8 ticks profit to get back to break even. Keep in mind the volume of these markets may be less than other markets, too, so there is always a possibility of more slippage when entering and exiting your trades.

Here is the link to the CME Group website for the Currency Futures reference page for more information on these products: http://www.cmegroup.com/trading/fx/index.html

Another bit of news affecting the Futures markets now is recently the CBOT Gold and Silver contracts were moved to the New York Stock Exchange Euronext Liffe Exchange. The move occurred back in September 2008 but the prices continued to trade on the Globex platform. As of March 2009, you will need to subscribe to the NYSE Euronext exchange to get these quotes if you would like to trade these contracts. This situation is much like what happened to the Russell contract when it left the CME Group and was moved to the Intercontinental Exchange (ICE) last year also, same markets but trading on new exchanges now. As with the Russell, we will have to see if the relocation can lure the previous traders to the new exchanges. Gold Futures are still dominantly traded in the pits at the New York Mercantile Exchange. Electronic trading volume is very low compared to the pit trading volume for Gold Futures. Again, if you use the electronic platform be prepared for slippage on your entry and exit points due to less liquidity (volume).

Here is the link to the NYSE Euronext site for all the specifications you need to know about trading the Gold and Silver contracts that have now moved from Chicago to New York: http://www.nyse.com/futuresoptions/nyseliffe/1211983444453.html

And now for the "Where will prices stop tomorrow?" portion. I can see all the top and bottom picker traders getting all excited and the trend followers saying, "Here we go again, another fortune teller." I would be in the camp of the trend followers simply because I am not a top and bottom picker. That said, though, I would like to share with you an indicator that has been very helpful in telling me when a market may be reaching an extreme for the day. Like any other indicator or tool I use I "do not" use this blindly to enter or exit my trades.

This study is referred to as the Average True Range (ATR). It was created by Welles Wilder and is based on trading ranges that are smoothed by an "X" number of periods using an exponential moving average. I like to use the 9 period ATR. The study is usually placed at the bottom of the chart and is represented by a line graph. Below is a chart of this indicator on a daily E-mini S&P chart. At the bottom right of the chart is the number 24.97. This is the ATR for the E-mini S&P as of this writing.

Figure 4

Most all charting packages have this indicator built in. For most of us, we will never have to calculate this formula. But here is a simplified view of the formula so you may have a better understanding. To calculate the ATR you simply take the last 9 trading periods and calculate the True Range for each period.

The True Range is the largest of the following three values:

• The distance from today's high to today's low
• The distance from yesterday's close to today's high
• The distance from yesterday's close to today's low

Then add the 9 periods ATR up and divide by 9. This gives you a smoothed average of how many points the particular market has traded in for each of the last 9 trading days. ATR is simply the true range averaged over a number of bars of data. And this is where the strength of this indicator lies. By knowing how far on "average" our market has moved each day, we can "project" the current day's high and or low.

I will describe how I apply this to my charts each morning:

• First, I identify the actual Globex High and Low from the overnight session just prior to the 9:30 EST market open. Let's say the actual Globex market high was 851.00 and the low was 846.00
• From the chart above we can see the ATR is 24.97. If we round this we get an ATR of 25.00
• I then take the actual Globex low (846.00) and add our ATR (25.00) to get a Projected High of the day around 871.00
• Then I would do the same with the actual Globex High (851.00) and subtract our ATR (25.00) and get a Projected Low of the day around 826.00
• I can either place lines on my charts at these levels or write the numbers down on a sheet of paper for reference
• If the actual Globex High or Low is broken we must recalculate the projected high or low for the day. Usually you just end up doing the high or the low but not both.

So for this trading day, I am "anticipating" the market to stay within my Projected Ranges of:

Projected High = 871.00
Projected Low = 826.00

As I mentioned in the beginning of my article, I do not try to buy or sell at these levels without any other confluences. I would use these as Overbought/Oversold "zones." In other words, if I were using my trending model and we were up against the Projected High of the day and I get a buy signal, I would be very reluctant to take a buy signal. Same if we were against the Projected Low and I got a sell signal, I would be reluctant to take a sell signal. These would be logical profit taking areas if I had been in the market prior to getting to these levels.

Now if I were trading Support/Resistance levels this particular day and we had some very good resistance to the left of the chart and the Projected High for the day is near that resistance, I would be very happy taking a short position at that level. Same if we were at the Projected Low for the day and to the left of the chart we had some really good support level, I would be happy to take a long position at that level.

You can see that by knowing what your market's ATR is can be very helpful in mapping out your trading day. These Projected Highs and Lows of the day are where many people will be looking to take profits or fade the market. I hope this will help you keep from buying into resistance and selling into support by knowing these levels ahead of time.

Have a great week,

- Don Dawson

DISCLAIMER:
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.

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