Tick size, contract months, and rollover
Futures contracts expire, and the continuous chart you are looking at was assembled from several of them. How that was done affects every historical level.
Three mechanical facts about futures that have direct consequences for anything measured on a chart.
Tick size and tick value
Tick size is the smallest price increment a contract can move. Tick value is what that increment is worth in money for one contract.
These are fixed by the exchange and specified per contract. They are the first thing to look up before trading anything unfamiliar, because they determine what a given move costs or earns and they vary enormously between contracts.
They also anchor everything else. A stop placed a certain number of ticks away has a knowable money value. That arithmetic is covered in position sizing.
Contract months
Each futures contract expires. Several months trade simultaneously, and the one carrying the most activity is called the front month.
Volume concentrates almost entirely in the front month. Charting a back month usually produces a thin, gappy series that is nearly unreadable, so charts follow the front contract.
Rollover
As expiry approaches, activity migrates to the next contract over a few days. During that window, volume splits and neither contract shows the full picture.
The two contracts also trade at different prices — carry, financing, and expectations mean the next month is rarely at the same level. So switching charts from one to the other produces a step in price that has nothing to do with the market.
The continuous contract problem
To get an unbroken history, platforms stitch contracts together. There are two common approaches, and they produce different charts.
Unadjusted splices the series and leaves the step where the switch happened. Every historical price is real, and the chart contains jumps that were never traded.
Back-adjusted shifts all older prices so the joins are smooth. The chart looks continuous, and older prices are no longer prices that ever existed.
Why this matters for indicators. On a back-adjusted series, a historical support level is at a price the market never traded at. Levels drawn from old data are offset by the sum of every adjustment since. On a long enough history, back-adjusted prices can even go negative.
Anything reading levels from long history on a continuous contract is affected. Check which method your platform uses before trusting old levels — and treat backtests run on continuous data with the scepticism described in reading a backtest.
Practical points
- Know your contract's expiry and roll schedule before it arrives
- Expect distorted volume during the roll window
- Re-check levels drawn before a roll — they may have shifted
- Be cautious drawing conclusions from a chart spanning many rollovers