Futures Trading Setups - Learn To Trade Futures | Commodities Futures Trading Course

How I Use Other Futures Contracts As Trading Setups

Sometimes there are certain markets which follow the lead of other markets. This type of similar price relationships happen often in futures. They may not last forever, but there are some commodities that are inter-related to each other.

Commodities like Heating Oil and Crude Oil, or Gasoline and Crude Oil can have similar moves. Or commodities that are in the same categories like grains or softs. These sometimes can give us hints about the futures that we trade. They may not last forever, but many times pricing can follow another for fundamental or macroeconomic reasons. For what reasons, who knows? But for me, I don’t care, as long as they follow each other somewhat the same.

For instance, Crude Oil and Soybean Oil seem to be moving along experiencing the same patterns for ebbs and flows of the market place. As crude oil moves higher, so does bean oil. If crude oil loses so does bean oil.

The similarities in pricing can work as a futures trading setup of some sort. You always want to do your homework, but comparing one futures contract to another can solidify or further confirm a move in a commodity that is somewhat inter-related.

For that matter, if your desire is to trade crude oil or the emini crude oil contract, you can benefit by trading the soybean oil contract. Trading soybean oil contract can pose some benefits for the small trader, while confirming trends and movements in general as pricing movements seem to continue moving together. Sometimes these last for a long time, and sometimes they pass quickly.

The point is to use them in your analysis if it can help you become more successful. Of course, this type of analysis shouldn’t be your only source of confirming your trades.

Here are the two benefits of trading soybean oil to trading the emini oil contract:

Soybean Oil has a considerably smaller margin than both the emini crude oil contract and emini gasoline contract; this allows you to take advantage of crude oil moves without the crude oil risk.
Soybean oil opens later than emini crude; this allows you to look first at crude oil and where pricing is headed for that day, which may give you a hint into the trend in soybean oil market.

Since crude trades earlier than bean oil, I can watch crude oil’s movement and see the strength of that movement and then react using bean oil contracts. This allows me to benefit from moves in crude oil (in this case) and benefit in bean oil, while not risking anymore money.

I can even trade 2 contracts and still be under the current margin requirement than the emini crude contract.

Always keep an eye for these types of commodity pricing relationships as they can unveil an effective filter to find profitable setups in the commodity markets. Remember these relationships don’t last forever so always use other filters to strengthen your market analysis when deciding to make a trade.

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