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Over the past two days (Part 1 is here and Part 2 is here), I’ve discussed what futures are and how they help bridge the gap between global markets and the U.S. market.
Now let’s dive into how you can use futures as an indicator to predict daily market movements.
Futures: Your Daily Early Warning System
One of the most practical ways to use futures is as an early indicator of where the U.S. market is likely to open. As we discussed earlier, because futures trade almost 24 hours a day, they can react to global news and events long before the U.S. market officially opens.
If you’re getting ready to trade in the morning, the first thing to check is where the futures are trading. Futures give you a snapshot of how markets overseas have affected U.S. stocks overnight.
How to Read the Signals
Let’s say you see that S&P 500 futures (ticker symbols /ES on most platforms) are down 1% before the U.S. market opens. That’s a clear signal the market might open lower.
On the other hand, if futures are up, it’s a good sign the market could open higher.
What’s important to remember is that futures don’t guarantee what will happen, but they give you a strong indication.
If you’re aware of the overnight moves in futures, you’ll have an edge in preparing for how the market might behave once it opens.
Avoiding the "Gap Shock"
Traders often talk about “gap up” or “gap down” openings — when a stock opens significantly higher or lower than its closing price the day before. If you only focus on the U.S. market and ignore futures, these gaps might catch you off guard.
But by checking futures early in the morning, you can avoid this “gap shock.” You’ll know ahead of time if the market is likely to open much higher or lower than the previous day’s close.
Final Thoughts: Futures as an Indicator
Long story short, futures are an essential tool for any trader.
They give us insight into global market movements and help you gauge where the U.S. market is headed before it opens.
Whether you’re trading stocks or simply keeping an eye on the markets, understanding how to use futures can give you a significant advantage.
Remember, futures don’t predict the future — they indicate where the market might be headed. And with this knowledge, you can stay one step ahead.
Common Futures Ticker Symbols to Watch
Here are some of the most popular futures symbols you can keep an eye on:
| | • | | /ES – S&P 500 E-mini futures | | | • | | /NQ – NASDAQ-100 E-mini futures | | | • | | /YM – Dow Jones Industrial Average E-mini futures | | | • | | /RTY – Russell 2000 E-mini futures | | | • | | /CL – Crude Oil futures | | | • | | /GC – Gold futures | | | • | | /SI – Silver futures | | | • | | /HG – Copper futures | | | • | | /ZN – 10-Year U.S. Treasury Note futures |
These symbols will help you monitor the most widely traded futures markets across different asset classes.
— Geof Smith
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