Most people trading futures use futures trading strategies based on technical analysis, with particular focus on the support and resistance levels. Most of them are trading this way without even considering what is going on in the other markets, such as the currency or bond market. Examining each market though is what separates the beginners from the professionals.
If for instance you are trading gold or crude oil and you notice a significant support or resistance line on your chart, you would expect the price to stop and bounce once it reaches that level. Nevertheless, what you forget is that the chart you see is strongly correlated with the currency ones. Therefore, if the US Dollar Index depreciates by just a quarter of a percent, either one of the assets mentioned above will have their prices inflated accordingly, by a quarter of a percent as well. Therefore, the right way to trade in this case is to move your support or resistance levels up by this specific amount. While this is just a basic example, you should know that any good future or Forex trading strategy should also be dependable on other assets, other than the one being traded.
If you are trading USD denominated liquid assets on a regular basis, such as crude oil or gold, you should know that the biggest risk and the most unpredictable thing that can happen in these markets is the inflation or deflation of the dollar. This is where you can correlate a Forex trading strategy with a futures one. The most natural hedge trade for a crude oil or gold long position would be another long position, but placed on the US Dollar. You can place these trades when the support or resistance levels suggest so, based on Fibonacci trading, or according to whatever currency trading system you prefer to use. Another important thing that you must keep in mind is that the currency used to counter a position should also depend on its current or even anticipated yields.
Even if you are not a fundamental trader and you only utilize technical trading strategies in your approach, you should still know that the currency markets always leave some foot prints that subtly show the intentions of the biggest traders out there. It is not a secret anymore that the big guys in the trading industry have entire departments set up for the sole purpose of hedging, since they want to have some protection at all times. No large futures or currency trading firm will place any big orders without a hedge position prepared at the same time.
In conclusion, next time you find yourself running to your platform to have a look at the USD Index chart, try to remember to check for some correlation between the USD Index and commodities. If you manage to open a position without forgetting about the counter one, in the end you will call it even in the worst case. This is how all the professionals make their living by trading and this is how you should do it too.
