When is the best moment to rollover the contract?
There are no predetermined hard and fast rules but usually traders holding their positions in the futures markets will not necessarily keep their eye on the final day of expiration to effect the rollover to the forward contract. More likely the trader with a long term position would be watching the market volume in the current contract and also keep an eye on the succeeding contract to monitor the rise in volume in that forward contract. The moment the volume in the forward contract hits a parity with the current contract then for the seasoned trader that is a signal that a rollover must be effected as soon as possible.
When it comes to currency trading for the smaller non-institutional trader there remains a broad range of entry points to gain exposure to an opportunity in a currency product.
There are the numerous retail forex trading platforms, bank trading platforms for forex trading for small corporates and the currency futures on exchanges like the CME http://www.cmegroup.com/trading/fx/
Although many retail traders primarily trade the forex markets from a short term point of view i.e the day trading perspective where a trader is looking for sudden breaks on releases of important economic data, or the swing trader that hunts for market pauses and uncertainty and then takes position for a 3 day outlook, again seeking a sudden break in market direction, there are some traders who take positions in currencies for a longer term perspective.
Longer term trading objectives to reach predefined target points are usually techically based and based upon analytics using a combination of various paramaters such as Japanese candlestick charts, Bollinger Bands, Fibonacci and momentum indicators like RSI and Stochastics. Such traders who take positions that may hold for several months, if utilizing the futures markets, would therefore come to a point where a futures contract would expire. and in such cases of expiration a rollover to the next forward contract becomes essential.
Look at the example below of a futures market copper contract for march 2015.
In this recent chart you will notice the sudden appearance of the hanging man highlighted in the red circle. But there is a difference in this chart in that the Hanging Man as shown in previous articles, does not immediately lead to a decline in prices. This is because the need for long term position traders and ETF's to rollover their contracts before current contract expiration.
Compare to - articles -
http://forexeducationperspective.blogspot.com/2015/01/article-markets-and-battlefields-2c.html
and
http://forexeducationperspective.blogspot.com/2015/01/article-markets-and-battlefields-2b.html
and
http://forexeducationperspective.blogspot.com/2014/12/article-markets-and-battlefields-2.html
Chart analysis -
Although the first week of December started with a high volume activity on both sides of the short and the long, the succeeding Hanging Man did not push the market down immediately for one important reason - the timing of the December contract expiration looming dead ahead.
With contract expiration ahead at the end of the month December the shorts took to short covering which led to a technical bounce in tandem with market traders and ETF rolling forwards their long term short position from the December to the March contract. The net result was a temporary bounce caused by rolling and profit taking before the market eventually resumed its downward trajectory.
Pieter Bergli - DeLoren Trust Holdings
Forex education for traders
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Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
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