Fundamental or Technical Analysis, Which Matters More for Futures Trading?

A futures contract is a standardized agreement to buy or sell an underlying asset at a future date. The analysis required when trading one is materially different from stock trading. What matters in practice is that futures markets are leveraged, fast and liquidity-driven, so being simply “right” doesn’t always cut it.

Traders need to ask three basic questions when performing their analysis to engage in futures trading:

Direction: What’s the likely bias — bullish, bearish or neutral?

Timing: What conditions must occur for the market to confirm your thesis?

Risk: Where could your thesis go objectively wrong?

Fundamental and technical analysis are two methods to figure out the answers to these questions when engaging in a trade.

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Fundamental Analysis

Supply and demand are the most obvious factors that contribute to the price of any commodity, but a complex web of underlying factors make it difficult to correctly predict which way the market is tilting.

Futures traders who rely on fundamental analysis will closely track multiple data points that could affect the commodity’s price in the future. Many of these data points are economic indicators that are released at scheduled intervals. Examples of these data points include:

• CPI, or Consumer Price Index
• Personal Consumption Expenditures (PCE)
• Initial jobless claims
• Nonfarm payrolls (NFP)
• Gross Domestic Product (GDP)
• Purchasing Managers’ Index (PMI)

All this data feeds into expectations about the Federal Reserve policy, which has a direct impact on rates-sensitive markets like equity index futures, metals, forex and cryptocurrency.

Inflation rates are one of the main drivers of short- and long-term commodity prices, which explains why futures traders monitor Fed policy and rate expectations so carefully. Although these economic data points are key to any fundamental analysis, they are not the only factors that futures traders must consider. Other elements of a thorough fundamental analysis include:

• Transportation costs
• Storage costs
• Climate (in the case of agricultural products)

Generally, the more relevant factors analysts or traders include in a fundamental analysis, the more thorough and accurate their analysis will be.

A quality fundamental analysis gives traders a global view of all the variables that contribute to the price of a given commodity, but what matters more is if the trader can successfully gauge the “surprises.”

Futures markets price the expected path of inflation, rates, and supply-demand balances, not the current headline reading.

An experienced futures trader would be less concerned with what the existing rate is versus analyzing whether the number would come in line with market expectations.

Important questions to ask when performing fundamental analysis with Fed rates:

• What’s the surprise vs consensus?
• Does it change the next one to three meetings expectations?
• Does it change the terminal rate / cut timing narrative?
• Does it flip correlations (for ex. USD up leads to commodities going down)?

Having this multi-faceted and global approach can give traders better insight into market trends and potential profit opportunities than traders relying on less rigorous analyses.

This is why a quality fundamental analysis is such a valuable resource. Futures traders who lack an in-depth understanding of the forces impacting supply and demand for their chosen commodity can make extremely expensive mistakes in the fast-paced, highly leveraged world of futures trading.

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Different Commodities Have Different Underlying Fundamentals

A wide range of commodities is available for futures trading, each with its own unique set of underlying fundamentals. The price or availability of one commodity can be an underlying fundamental that affects the price of another commodity in a futures contract. For example, transporting soft commodities from their point of origin to their final market destination.

That’s why oil prices are one of the factors that need to be included in a fundamental analysis for commodities like coffee or cotton. If oil prices increase, transportation costs will rise. This will put upward price pressure on any commodity that must be transported from one point to another.

There are also market fundamentals that aren’t tied to other commodities. Inflation is a constant consideration in futures trading, but it affects some commodities more than others. Investors have historically used gold as a hedge against inflation, which means gold prices can rise dramatically when inflation spikes. The same is true for other precious metal futures (e.g., platinum, silver), and increasingly, traders are using cryptocurrency futures as an inflation hedge.

Limits of Fundamental Analysis

No matter how many variables a trader may account for in a fundamental analysis, it is always possible for an unforeseen event to affect the profitability or elevate the risk of a futures contract. Examples of these events include natural disasters or geopolitical tensions.

One example of this from recent years is the price of wheat futures in Winter 2022. The price had been trending up throughout 2021, before spiking sharply in February 2022 as Russia began massing troops on the Ukrainian border. This rattled the markets because Ukraine is one of the world’s largest wheat producers.

Russia invaded on February 24, 2022, and wheat futures reached an all-time high of above $13.5 per bushel in early March 2022, nearly double the price from the same period in 2021. Cut to 2026 and wheat futures are trading around $5.9 per bushel. The invasion-related spike would have been impossible to predict, but the fact that wheat futures have retreated from the early invasion high suggests the market has adjusted to the instability in Ukraine.

Fundamentals can tell you the market is fragile based on predicting tight global stocks, export concentration and geopolitical risks but cannot time the shock or the peak.

That’s why traders lean on technicals for execution: you need levels and risk points when volatility explodes.

Dig Deeper: 5 Fundamental Indicators Every Futures Trader Should Watch

Technical Analysis

Traders using a technical analysis rely on one main piece of evidence to assess the potential profitability of futures contracts: live, real-time auction behavior.

Such an analysis could be based on:

• Price (structure and range)
• Volume (participation and acceptance)
• Open interest (position build vs liquidation)
• Volatility (risk regime: compression/expansion)
• Time-of-day behavior (especially around major releases)
  
  

To some, a technical analysis seems more performative or uncertain in comparison to fundamental analysis. In reality, expert traders rely on a plethora of tools to aid their study of fundamentals in predicting more immediate and short-term movements.

• Support and resistance: decision zones where liquidity clusters
• Moving averages: regime filters (trend vs mean-revert) and widely watched dynamic levels
• Average True Range (ATR): how far the market typically moves (risk sizing, stop realism)
• Relative Strength Index (RSI) / momentum tools: helps spot exhaustion versus continuation
• Volume profile / VWAP: where business got done; mean-reversion magnets versus breakout acceptance.
  
  

If the price for a particular commodity doesn’t rise past or fall below a certain dollar amount for long periods of time, traders can use that data to find the commodity’s support (where to buy) or resistance points (where to sell). This information is a key factor in a trader’s decision on where to enter or exit a particular futures contract.

Without a technical analysis, an overly bullish futures trader may think the price spike is “the new normal.” By contrast, a trader who has done a more thorough technical analysis may hedge their futures trades in such a way that allows them to profit from both the temporary price spike and the eventual price correction.

Technical analysis is not about prediction. It is about identifying asymmetric setups where the potential reward materially exceeds the predefined risk.

An experienced futures trader’s checklist when performing a technical analysis looks something like this:

1. Regime identification: trend, range, or transition?
   
   
2. Key levels: prior day high/low, weekly high/low, major swing points, value area
   
   
3. Trigger condition: what must happen to enter (break + hold, pullback + rejection, failed breakdown, etc.)
   
   
4. Invalidation: where the idea is objectively wrong
   
   
5. Risk unit: how much you lose if wrong (defined before entry)
   
   

That’s why technical analysis is loved by short-term traders: it’s one of the few frameworks that forces pre-commitment to risk.

Similar: Beginner's Guide to Trading Corn Futures on CBOT

Combining Technical and Fundamental Analysis

Although the nuts and bolts of conducting a fundamental analysis and a technical analysis may differ, the truth is professional traders aim to smartly combine the two.

Each method helps traders gain clarity about a potential futures contract. With that in mind, it should come as no surprise that many traders use both methods. In many cases, the conclusions traders draw from a fundamental analysis will offer context to the data they get from a technical analysis.

Imagine looking at wheat futures in late 2021 and early 2022. Using the price chart to conduct a technical analysis would show strong upward price pressure beginning in the fall and continuing into the Winter months. Then, there was a dramatic spike in February that continued into March, when wheat futures reached an all-time high. The next decision for futures traders would be how to time entry or exit from futures contracts to limit losses and maximize profits.

In other words, the technical analysis would give traders insight into what the market was doing. The fundamental analysis would offer insight into why the market was behaving the way it was. Futures traders using the combined insights from both analytical methods may have been able to time their entry or exit from their futures contracts and maximize profits.

Which Analytical Method is More Important?

Fundamental and technical analyses both offer futures traders important information that is critical to making profitable trades. With that said, answering the question of which one is more important hinges heavily on your primary mission. If you’re a trader seeking raw information such as trading volume, price, or support and resistance points in a fast-moving market, a technical analysis is probably more important to you.

On the other hand, if you’re looking for long-term market trends or looking to understand why a futures contract price is moving in a particular direction, you will need more than a price chart. In that case, the deeper insight you would get from a fundamental analysis would be of greater importance. With that said, the depth and quality of the analysis will go a long way toward assessing its usefulness.

With that said, at the end of the day, both fundamental and technical analyses are essential tools for future traders. They’re of equal importance when it comes to helping traders assess the potential profitability or risk involved in a trade. The insight they provide is only as good as the trader’s ability to use the data they provide, because two traders can draw different conclusions from reading the same analysis.

For intraday trades, technical analysis dominates the trader psyche as they look to survive volatility and define risk.

For trades that extend multi-day to multi-week, fundamentals tend to dominate because the big money moves on changes in expectations, balances, and constraints.