Commodity Strategies: High-Profit Techniques for Investors and Traders

CHAPTER 3

Using Spot Charts

Now that we have covered the basics of the Point & Figure method, and have learned how the same concepts that are applied to equity analysis are transferable to the analysis of commodities, we now want to present you with another tool that can help in your commodity trading: the use of spot and continuous charts.

For edification, “spot” refers to a cash market price for a physical commodity that is available for immediate delivery. The “spot month” is basically the futures contract month closest to expiration, and is also referred to as the “nearby delivery month.” A “continuous” chart uses the current nearby futures contract price data, continually rolling to the next near month as the earlier one expires. So, the price of a futures contract at expiration and the cash or “spot” price of the underlying asset must be the same, because both prices refer to the same (physical) asset.

Spot and continuous charts are particularly useful in the analysis of the longer-term trend of a given commodity because of the amount of the historical price data included on such a chart. I always check the continuous chart before I go to the contract month I want to trade, as it helps with my perspective. You will recall that we just finished a discussion on trend analysis and how this is an integral part of technical analysis. So it goes to reason that by consulting a spot or continuous chart, you will be provided perspective as to what the longer-term trend of a given ...