Ask Colin

How can you calculate support and resistance when a new futures contract starts trading?

This is not really my area of expertise. However, I am aware that there are various methods of creating what are called "perpetual contract" charts. What most people do is just trade each contract on its own. However, for longer term work, the "quick and dirty" way is to just keep a chart of the nearest month. The problem with this is that there are gaps when the contract expires and the next one is used for the chart. To get around this there are several methods of creating these perpetual contract charts by somehow smoothing the joining process.

I get the impression that all of these methods involve compromises or assumptions and there is debate about which is best. You are going to have to track them down and make up your own mind. I would start with some of the links on www.ataa.com.au and that will take you to many more.

The other way to deal with the problem is probably to remember that every futures contract has an underlying instrument. You should already be charting the underlying and know how to calculate the fair value for the futures contract. So, you could look for support and resistance levels on the underlying and translate that to the futures. You will also take into account whether the futures are currently under or over fair value. It will not be precise, but should give you some additional information to work with.

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