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The world of futures trading has changed forever.

FuturesOne Vice President Sterling Smith is right on the cutting edge of these changes, and experienced these changes. In his new work, Sterling Smith's Guide to Trading in the New World , he looks at these changes, their implications and ways to handle them. Spanning everything from inter-market relationships to risk management, this new work is a must read for new traders and market veterans alike. Go here to get your COMPLIMENTARY copy today.

Modern technology is an amazing thing...If we look back 25 years ago before computerized quote systems became all the rage, charts were often kept by hand in chart books, and none of the modern indicators that we can apply to our charts with the press of a button existed. Now we have a whole host of these "gadgets" to help us with our trading. In today's educational Fast Break I am going to talk about some of these indicators and when and how I use them.

The first one I am going to talk about is one of the basic indicators that I use regularly, which is the Stochastics. I found an internet definition that read something like this: "An oscillator based on the position of the current close relative to the absolute price range over the last (insert period) days." The stochastic consists of 2 lines a %K and %D, with K line being the basic calculation and the %D line being the moving average of the %K line.

The stochastic comes in range of zero to 100, and can be applied to any chart time frame from 1 minute to a monthly chart. This indicator is widely used to measure a market's overbought and oversold conditions. This indicator is purely mathematical and attempts to derive value from price and price actions.

How I use the stochastic is as an entry and exit tool. While one should never rely on one single indicator, this is one my key filters when looking at market. Essentially as the indicator line approach zero a market is becoming more and more oversold within the time frame being measured. Conversely as the indicator lines approach 100 a market is becoming more and more overbought.

The next thing I do is measure the market over several time frames and look for more consistency amongst the time frames ranging from 5 minutes to daily or even weekly charts. I want to see consistency amongst all or most of them, as this increases the likelihood of a market moving from an overbought or oversold level.

Things to be aware of when using a stochastic, are first, it can be a lagging indicator, meaning that a signal will come somewhere after a high or low price is recorded. The second concern is that a stochastic has virtually no ability to predict the magnitude of the move, meaning that a signal can be generated at the start of a significant move that makes for a worthwhile trade, or the move may be of a smaller size, which may not be worth the hazards inherent to trading.

Also, large moves can skew any chart indicator and the Stochastics is no exception. During protracted bull runs, for example, they can be pushed into the overbought area and stay there for prolonged periods, with market moves that can be very disconcerting. While filtering through various time frames can help cut down on this, there is no way to completely filter it out. The percent R indicator is very similar to the stochastic.

The next indicator that I have found helpful is the Bollinger Bands which are traditionally plotted above and below the 21-day moving average of a markets price. These upper and lower boundaries factor in two standard deviations of the price movement over the previous 21 days. I like this indicator, as it helps confirm support and resistance ideas within a market, and I use it after filtering a market with my stochastic paradigm.

The next major indicator and one that I think everyone should be looking at is moving averages. These indicators are so widely followed by large and small traders alike that they now often represent some of the most important market levels in play. A moving average is just that, it is the average closing price over what ever number of periods that you select, in any time frame that you select, so clearly this indicator is very flexible.

I prefer to use the 10, 30 and 60 bars as my chosen periods. I use the phrase "bars" as opposed to days because I use moving averages through many different time frames. With markets being as large and as volatile as they are currently, a trader needs to gather as much data as he/she can about market conditions before entering into a trade.

I have noticed that many commodity markets when in a bullish phase tend to bounce off the 1-day moving average. I wouldn't predict all of my trading off this, but I have seen this happen with some regularity.

The most important thing about all of these gadgets we have is how they are incorporated into a trading plan. Develop your plan carefully and stick to it, and if you need help, don't be afraid to ask, and don't be afraid to experiment with all of the tools at your disposal. There is no magical pixie dust or secret sauce that is going to shake out perfect trades, but there are things we can do to help ourselves out and one thing I like to see is agreement amongst indicators and time frames, while that may not always squeeze out perfect trades, hopefully it helps in staying away from the bad ones.

The modern trader has many tools at their disposal, and hold phrases like "top of the chart resistance" have been displaced, and while modern tools can help tremendously they are not a substitute for discipline and good risk management.

REPRODUCTION OR REBROADCAST OF ANY PORTION OF THIS INFORMATION IS STRICTLY PROHIBITED WITHOUT THE WRITTEN PERMISSION OF FUTURESONE AND STERLING J SMITH. THE INFORMATION REFLECTED HEREIN IS DERIVED FROM SOURCES BELIEVED TO BE RELIABLE; HOWEVER, THIS INFORMATION IS NOT ASSURED AS TO ITS ACCURACY OR COMPLETENESS. OPINIONS EXPRESSED ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS MATERIAL AND ANY VIEW EXPRESSED HEREIN ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED IN ANY WAY AS AN INDUCEMENT TO BUY OR SELL COMMODITY FUTURES OR OPTIONS CONTRACTS. FUTURESONE AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND AFFILIATES MAY TAKE POSITIONS FOR THEIR OWN ACCOUNTS IN CONTRACTS REFERRED TO HEREIN. TRADING FUTURES INVOLVES RISK OF LOSS. DO NOT DUPLICATE.

This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way assured. No assurance of any kind is implied or possible where projections of future conditions are attempted.

Futures and options trading involve risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this market letter be construed as an express or an implied promise, assurance or implication by or from FuturesOne or Sterling J Smith that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance.

The world of futures trading has changed forever.

FuturesOne Vice President Sterling Smith is right on the cutting edge of these changes, and experienced these changes. In his new work, Sterling Smith's Guide to Trading in the New World , he looks at these changes, their implications and ways to handle them. Spanning everything from inter-market relationships to risk management, this new work is a must read for new traders and market veterans alike. Go here to get your COMPLIMENTARY copy today.